The dollar has largely erased all gains since the Iran war

Odaily Planet Daily News: The U.S. Dollar Index (DXY) has essentially pulled back all gains made since February 27. The dollar was already in a weak position before the outbreak of the recent Iran conflict, weighed down by a series of policies, including Trump's trade war and its threats to the Federal Reserve's independence. The Fed's consecutive rate cuts last year, along with hedge funds and other investors massively establishing short positions on the dollar, also weakened the greenback.

This situation briefly changed after the war began, as investors covered their dollar short positions and began betting on a potential Fed rate hike. However, these gains have now completely evaporated, partly due to optimistic market expectations that the U.S. and Iran might soon resume negotiations.

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