USD: Funding-driven support in war-driven stress – BBH
|Brown Brothers Harriman’s (BBH) Elias Haddad highlights that global risk sentiment is deteriorating as Oil rises, equities and bonds fall, and the Dollar strengthens. The bank argues that a persistent energy shock from the Iran war would trap central banks in restrictive policy and worsen government debt dynamics, allowing the Dollar to benefit mainly from elevated USD funding needs rather than classic safe-haven demand.
Dollar strength tied to funding stress
"Crude oil prices remain under upward pressure, global equity and bonds continue to slide, and USD is pushing higher against most currencies."
"The heightened likelihood of a more persistent energy shock raises financial stability risks because it traps central banks in restrictive policy and puts government debt on a more fragile and unsustainable path."
"As such, USD can continue to benefit driven by dollar funding needs, not safe haven flows."
"Demand for short-term USD funding tends to spike during periods of stress due to the dollar’s dominant role in the global financial system (trade invoicing, cross border lending, global bond issuance, FX reserves)."
"Dollar funding pressure shows up in a narrowing and more negative cross-currency basis, which is increasingly the case at present."
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