USD: Haven appeal under pressure – DBS

DBS Group Research economist Philip Wee argues that the US Dollar’s traditional safe-haven role is being undermined as it failed to benefit from risk aversion despite higher Oil prices and geopolitical tensions. He highlights weak US labour data, monetary policy divergence versus Europe and the UK, political instability in Washington, and rising US fiscal concerns as key headwinds for the Dollar.

Haven status challenged by multiple headwinds

"In a notable departure from trends after the Israel-US-Iran war broke out, the USD failed to capture haven flows last Friday (March 6) despite Brent crude oil prices surging above USD90/barrel amid the escalating conflict."

"The negative surprise in February’s US nonfarm payrolls (-92k actual vs. +55k consensus) broke the resilient US labour market narrative that underpinned the Fed’s extended pause."

"In contrast, markets erased expectations of two Bank of England rate cuts and priced in two European Central Bank rate hikes this year, reviving a trade on monetary divergence against the greenback."

"Collectively, these upheavals signal a state of flux within the executive branch, eroding the predictable governance that underpins the USD’s haven status."

"Hence, the USD could come under pressure if the narrative behind higher US Treasury yields shifts from inflation to fiscal sustainability concerns."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)