What's a safe-haven? The USD makes a comeback amid Middle East tensions

[Redator]

The evolving role of the US Dollar as a Safe-Haven

While the US Dollar has not consistently acted as a primary safe-haven currency since the beginning of 2025, it remains crucial to observe where major players turn to secure their funds during periods of acute market distress.

As a brief reminder, safe-haven assets are those that attract significant demand during economic downturns, banking crises, or major geopolitical turmoil. Capital typically flows into these assets, reducing exposure to market risks. This category includes assets like Gold and sovereign bonds, such as US Treasuries. The increased demand for these bonds, particularly during flight-to-safety events, drives their prices up and yields down, which can also trigger the unwinding of carry trades.

Risk-on and Risk-off currencies

Furthermore, currencies like the Japanese Yen (JPY) and Swiss Franc (CHF) also tend to perform well. Both Japan and Switzerland are often perceived as militarily neutral, their currencies offer ample liquidity (essential during periods of high volatility when liquidity can become scarce), and their historically lower interest rates can make them relatively more attractive as other currencies' interest rates decline.

Conversely, currencies such as the Australian Dollar (AUD), New Zealand Dollar (NZD), and British Pound (GBP) tend to underperform. These are typically regarded as "risk-on" currencies, performing optimally when the global economy is robust.

So how does the US Dollar typically move?

The case for the US Dollar is complex. The Greenback is capable of serving both as a risk-on and safe-haven asset; however, recent flows indicate it has primarily responded to broader market sentiment, as many global funds have been reducing their positions in dollar-denominated assets – The Dollar has mostly been selling throughout 2025, even amid negative sentiment.

Nevertheless, during periods of widespread global panic, market participants often liquidate their assets to generate liquidity. Since the majority of these assets are priced against the USD, its value naturally tends to appreciate, particularly as demand for US Treasury Bonds surges – Exactly what has happened overnight.

Let's take a look at what happened to the Dollar.

US Dollar Index today - DXY 1H Chart

DXY 1H Chart, June 13, 2025 – Source: TradingView

The US Dollar which had been selling throughout Thursday's session caught a strong bid overnight as US Equity Futures were selling off.

After forming a double bottom, the DXY went from 97.60 lows to highs of 98.58 and is currently retracing this move as it rejected the immediate pivot zone located close to the 99.00 psychological level.

Prices are now stalling at the hourly Moving Average 50.

The market is evolving dynamically with accrued volatility, it's always necessary to stay in touch with how things are evolving as although history rhymes, it never repeats itself.

Other examples of Flight-to-Safety bids in the USD

2001 terrorist attacks on the United States

DXY Daily Chart, 2001 and 2002 – Source: TradingView

Run towards the US Dollar during the 2008 Great Financial Crisis

DXY Daily Chart, 2008 – Source: TradingView

Peak Covid fear in 2020

DXY Daily Chart, March 2020 – Source: TradingView

Safe Trades!

Opinions are the authors'; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. The provided publication is for informational and educational purposes only.
If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please refer to the MarketPulse Terms of Use.
Visit https://www.marketpulse.com/ to find out more about the beat of the global markets.
© {CURRENT_YEAR} OANDA Business Information & Services Inc.