What’s been dragging down the dollar?
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Whenever a major geopolitical conflict erupts, investors tend to pile money into the safest assets out there. Namely, the U.S. dollar.
Its value jumped at the outset of the war in Iran, and, over the first month of the conflict, it rose about 3%. But in the time since, the greenback has given up nearly all of those gains.
The dollar’s value rose early in the war in large part because the conflict has had an outsized impact on the rest of the world.
“It’s bad for the United States. It’s just that it’s worse for everybody else,” said Ken Rogoff, an economics professor at Harvard.
He said other countries are much more affected by energy shortages from the Middle East. As a result, investors poured more money into U.S. assets.
“When money flows to the United States, it pushes the dollar up. When there seems to be peace again, some of the money re-flows back in the other direction,” Rogoff said.
He said that’s partly why the dollar’s value started to fall after the ceasefire started a couple of weeks ago.
But plenty of other things are dragging down the dollar’s value, including the price of oil.
“80% of oil transactions are conducted in U.S. dollars,” said Juan Perez, senior director of trading at Monex USA.
Oil prices surged at the outset of the conflict. But in recent weeks, they’ve fallen some.
“So naturally, with oil prices going down, the need for holding U.S. dollars, or that necessity, has faded away,” Perez said.
There’s also the president’s approach to global trade.
“The dollar is perhaps a victim of the Trump administration’s policies, trying to extricate the U.S. from its role in the global economy,” said Christopher Vecchio, head of futures and FX at the research company tastylive.
He said many investors have been shying away from the dollar because of how the Trump administration has treated its allies.
“Given how the Trump Administration has conducted itself in the lead-up to this war, going after European allies for Greenland, how it’s conducting itself during the war, chastising NATO,” Vecchio said, those concerns aren’t going away. Even if the war in Iran were to end.