The dollar has almost completely erased all its gains since the Iran war

Odaily Odaily reported that the US dollar index DXY has almost completely erased all its gains since February 27. The dollar was already in a weak position before the outbreak of the latest Iran conflict, 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, have also weakened the greenback.

This situation briefly shifted after the conflict erupted, as investors covered their dollar shorts and began betting on potential Fed rate hikes. However, those gains have now entirely vanished, partly due to optimistic market expectations that the US and Iran may soon resume negotiations.

Nevertheless, Jane Foley from Rabobank stated that diverging global central bank policies are also a significant factor. Since the start of the conflict, the best-performing currencies among the G10 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, as market expectations for the UK interest rate outlook have rapidly and substantially shifted from rate cuts to hikes this year. Meanwhile, investors currently perceive the probability of a Fed rate hike as low. "Even if the Fed holds steady, it appears relatively dovish, which has clearly been dragging on the dollar," Foley said. (Jin Shi)