Middle East war pushes the US dollar index back to the 100 high point? Analysts pour cold water: This rebound won't last.

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Affected by the geopolitical tensions triggered by the Middle East conflict, the US dollar has recently resumed its upward trend. However, analysts generally believe that the rebound is on a weak foundation, as the structural issues that previously dragged the dollar lower have not been fundamentally resolved.

As a major global oil exporter, the United States has benefited from the surge in oil prices. Since crude oil is priced in dollars, rising oil prices directly increase demand for the dollar. Meanwhile, the Middle East conflict has strengthened the dollar's safe-haven status. The dollar index has recently surged, returning above the 100 level and is now approaching the highest point in nearly ten months.

HSBC's foreign exchange analysts noted in the latest research report: "The renewed geopolitical tensions in the Middle East have reaffirmed the US dollar's status as the primary safe-haven currency. Compared to the market narrative nearly a year ago, this attribute has never truly changed."

However, several analysts warn that the factors supporting the dollar's short-term strength are unlikely to offset its long-term structural weaknesses. Russ Mould, Investment Director at AJ Bell, one of the UK's largest investment platforms, told CNBC that the fundamental issues that previously caused the dollar to decline still persist, including uncertainty in US policy, a continuously expanding fiscal deficit, and political pressure on the independence of the central bank.

Oil Price Surge and Safe-Haven Demand Jointly Drive Dollar Rebound

Since the outbreak of the Middle East conflict on February 28, the landscape of the global foreign exchange market has changed significantly.

As a major oil exporter, the US has directly benefited from the surge in WTI oil prices—since oil is traded in dollars, rising oil prices directly boost demand for the greenback. At the same time, the dollar has reasserted its traditional safe-haven role, while other safe-haven currencies like the yen have performed weakly.

European currencies have been the main casualties of this round of conflict. Due to Europe's heavy reliance on energy imports, it is highly sensitive to oil price volatility triggered by the Middle East conflict, leading both the pound and the euro to weaken. In contrast, the US has achieved energy self-sufficiency and is better equipped to withstand supply disruptions at the Strait of Hormuz, a vital artery for global oil and gas transport.

Structural Risks Remain, Strong Dollar Hard to Sustain

Although the dollar has recently performed well due to geopolitical tensions, analysts are cautious about its outlook. HSBC analysts pointed out in a report that it is not advisable to fully bet on dollar strength at present, as the key macro drivers that boosted the dollar in 2022 no longer exist.

This short-term rebound comes after a period of historic weakness for the dollar. In the first half of 2025, following the Trump administration’s quick reversal of the "Liberation Day" tariff announced in April, market confidence in US assets was severely shaken, and the dollar recorded its worst half-year performance in more than 50 years. Morgan Stanley confirmed in a report last August that the dollar index fell nearly 10% for the year, marking the official end of a "15-year bull cycle."

Russ Mould, AJ Bell's Investment Director, attributes the current challenges facing the dollar to three layers of structural pressure: a US government lacking policy coherence, a persistently growing fiscal deficit, and the central bank’s independence facing political interference. He bluntly stated, these characteristics "frankly, are more often associated by investors with emerging markets rather than developed economies."

Regarding the sustainability of this round of the dollar's rebound, analysts generally believe it will depend on the evolution of the Middle East situation. The Chief Investment Officer of private bank Arbuthnot Latham told CNBC: "As long as the crisis continues, the dollar is likely to remain strong; but once the situation returns to normal, depreciation pressure on the dollar will resume. The current valuation of the dollar remains relatively high, and in the long run, this will be the core variable determining its returns."

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