Never would have thought! The US dollar is about to record its biggest gain in half a year.

```

The US dollar is poised for its strongest monthly rally since July last year, as safe-haven demand triggered by Middle East conflicts and soaring energy prices have completely disrupted Wall Street’s forecasts for this global reserve currency.

The Bloomberg Dollar Spot Index has risen more than 2% in March. Following the outbreak of conflict, the combination of surging energy prices and cooling rate-cut expectations has jointly pushed the dollar higher. Just prior to the conflict, the dollar had ended a four-month consecutive decline, making this robust reversal stand in stark contrast.

This round of rebound has caught institutions previously bearish on the dollar off guard. JPMorgan strategists have turned bullish for the first time in a year, and speculators in the futures market quickly shifted their positions from the largest net short in nearly five years since mid-February, now betting on a dollar rise. Steven Englander, Head of G10 FX Research at Standard Chartered Bank, said, "The dollar short positions at the start of 2026 have been caught flat-footed."

Shorts defeated, bulls take the initiative

Entering 2026, institutions such as Goldman Sachs and Deutsche Bank generally predict the dollar will weaken, with the core logic being that the Fed will continue its rate-cut cycle. This judgment is supported by historical evidence—the Bloomberg Dollar Index fell about 8% in 2025, marking its largest annual decline since 2017, as three rate cuts last year eroded dollar demand.

However, the geopolitical conflict has changed this narrative. Steven Englander has stuck to his bullish view since the start of the year, projecting the dollar-euro rate to rise to about 1.12 by the end of the year, stronger than the current level of about 1.15, which will mark a new high since May. In the options market during the London session on Friday, positions betting on dollar strength over the next 12 months dominate.

Bloomberg macro strategist Brendan Fagan pointed out that a shortage of spot energy will sustain dollar buying, as immediate demand for actual crude oil directly translates to immediate demand for dollars, while capital inflows will further reinforce dollar assets.

Many remain on the sidelines, forecasts diverge

Despite the dollar’s short-term strengthening, many institutions remain cautious about adjusting their forecasts, mainly because the duration and direction of the conflict remain uncertain.

Jayati Bharadwaj, Head of FX Strategy at TD Securities, wrote in a report this week that the current risk environment favors the dollar, and if the conflict escalates further, the bank will turn bullish. However, she also said that if the US and Iran reach a peace agreement in the next few weeks, the dollar may weaken, so she’s not revising her bearish forecast for now. She wrote, "In this scenario, the fading US growth advantage, shrinking safe-haven premium, and the potential strengthening of ‘hedging against the US’ trades triggered by recent US policies will all put pressure on the dollar."

Erica Camilleri, Senior Global Macro Analyst at Manulife Investment Management, also maintains a medium-term bearish stance, though the firm closed out its dollar short positions this month. She cited that pessimism about market growth outside the US has been "overblown," and the Fed still has room to cut rates, stating "we still tend to expect mid-term dollar depreciation, and still forecast the euro will appreciate before year-end."

Long-term risk: Dollar’s hegemonic status scrutinized

Beyond the short-term game, war is also reigniting a deeper discussion—whether the dollar’s long-term dominance is under threat.

Deutsche Bank wrote this month that the ongoing war is testing the dollar’s status as the currency for global oil trade settlement, and cited a potential trend of increased usage of the renminbi. More broadly, there are worries that war might trigger anxiety over the US fiscal trajectory, thereby driving capital to gradually exit US markets and dollar assets.

However, Goldman Sachs strategists pointed out this week that once the market’s focus shifts to the risk that high energy costs drag on economic growth, "it may curb the overall appreciation of the dollar against G10 currencies." Morgan Stanley goes further, arguing that as economic concerns accumulate, the dollar will weaken.

Elias Haddad, Global Market Strategy Director at Brown Brothers Harriman, said, "Relative macro fundamentals have taken a back seat and war-related headlines are now guiding market direction." He expects the dollar’s downward trend will eventually resume and emphasized, "This is a tactical market; you must react quickly."

Risk Warning and Disclaimer ClauseThe market has risks, investment needs caution. This article does not constitute personal investment advice and does not take into account individual users’ specific investment objectives, financial circumstances, or needs. Users should assess whether any opinions, views, or conclusions in this article are suitable for their particular situation. Investing based on this is at your own risk. ```