US Dollar Index: Rally questioned as safe-haven role tested – Rabobank

Rabobank’s Senior FX Strategist Jane Foley notes the US Dollar (USD) has been the weakest G10 currency over the past week, with US Dollar Index (DXY) down about 2% from late July. The report reviews how the Middle East and Iran conflicts, Trump’s tariffs and rate-cut rhetoric, and Fed expectations have shaped USD sentiment. It argues recent declines revive concerns about safe-haven status and reserve-currency privilege.

Dollar slide revives safe-haven doubts

"The USD is the worst performing G10 currency on a 5-day view, with the DXY dollar index having lost around 2% since its late July levels. Consequently, questions are already being asked if the USD rally, which has been in evidence through the duration of the Middle East crisis, is over. The context to these questions harps back to the sharp losses in the value of the USD last spring and the sour tone that hung over the greenback into the start of the Iran war in late February."

"When both the USD and US treasuries lost their footing in April 2025 following the tariffs announcements by US President Trump that month, confidence in the USD as a safe haven was undermined. This fanned the discussion about the USD’s role as the prime reserve currency, its place in international payments systems and the pace of de-dollarisation. Trump’s calls for rate cuts and concerns about Fed credibility also had a role in clouding the USD’s performance last year."

"Since then, the USD has proved that it is still the primary safe haven currency. Since May, it has found additional support from Fed rate hike speculation. Nevertheless, its recent decline has stirred up fears that last year’s negative sentiment could return."

"On top of that, safe haven USD buying will likely have been knocked back by the weekend announcement from Trump that he had paused further attacks on Iran on the hope of a diplomatic solution."

"While the market will continue to debate the long-term outlook for the greenback and its place as the world’s primary reserve currency, its short-term outlook should continue to find support from relatively good US economic data."

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