The US dollar has almost fully given back all its gains since the Iran war

Odaily Odaily Odaily Planet Daily News The US dollar index DXY has essentially erased all of its gains since February 27. The dollar was already weak before the outbreak of the war with Iran, weighed down by a series of policies, including Trump's trade war and his threats to the Federal Reserve's independence. The Fed's consecutive rate cuts last year, along with hedge funds and other investors building large short positions against the dollar, also weakened the greenback.

This situation briefly changed after the war began, as investors unwound their dollar short positions and started betting on a possible Fed rate hike. However, those gains have now completely vanished, partly due to market optimism that the US and Iran might soon resume negotiations.

Nevertheless, Jane Foley of Rabobank stated that diverging central bank policies globally are also a significant factor. Since the start of the war, the best-performing G10 currencies have been the Norwegian krone and the Australian dollar, as both central banks have recently raised interest rates due to concerns about worsening inflation. The British pound has also performed strongly, with market expectations for the UK interest rate outlook this year rapidly and substantially shifting from rate cuts to hikes. Meanwhile, investors currently see a low probability of a Fed rate hike. "Even if the Fed stays put, it is relatively dovish and has clearly been weighing on the dollar." (Jin Shi)