USD: War-driven haven trap delays mutiny – DBS

DBS analysts Philip Wee and Chang Wei Liang argue that the Dollar’s (USD) broader downtrend has been interrupted by war-related haven demand and elevated Oil prices. They highlight structural risks from questions over Federal Reserve (Fed) independence and US fiscal sustainability, suggesting US financial hegemony is increasingly being reassessed by global investors.

War shock props up Dollar temporarily

"A USD mutiny is delayed due to elevated oil prices, but questions over Fed independence and US fiscal sustainability pose structural risks for the USD."

"The USD is experiencing a temporary geopolitical floor amid Operation Fury."

"Nonetheless, the unilateral nature of the US-Israel strikes has created a rare consensus of dissent among G7 allies, notably France, Germany, and Italy, which have refused to provide naval support in a conflict they were not consulted on, signaling a de facto abandonment of the American security umbrella."

"This isolation, coupled with the US-inflicted global economic and inflationary pain driven by the Strait of Hormuz closure, has prompted global investors to re-evaluate the US Treasury bond as a risk-free asset."

"Consequently, the "American Hubris" narrative risks transforming from just a diplomatic critique into a primary market driver, suggesting that the era of unquestioned US financial hegemony is being eroded by predatory US foreign and economic policies that alienate countries, including allies."

"Once oil flows resume, capital should shift towards currencies with stronger fundamentals."

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