If the US Intervenes Directly in the Middle East, the Dollar Could Be the Biggest Beneficiary
ANZ Bank has warned that if the US directly engages in the escalating military conflict between Israel and Iran, it could intensify geopolitical tensions and trigger significant volatility in international markets. As a result, oil prices might soar, and the dollar could strengthen significantly due to increased demand for safe-haven assets.
Khoon Goh, Head of Asia Research at ANZ Bank, noted in his analysis that if the US takes military action, it will undoubtedly heighten risks associated with the Strait of Hormuz, a global critical energy passage. Disruption in oil transport would directly drive energy prices up, leading to a chain reaction.
Rising Oil Prices Unfavorable for Yen, Dollar's Safe-Haven Appeal Enhanced
Traditionally, the yen is considered a safe-haven currency amid rising global geopolitical risks. However, Khoon Goh pointed out that this time, the yen might not benefit as it did in the past. The main reason is that rising oil prices would put negative pressure on Japan's economy. Japan relies heavily on energy imports, and high oil prices would suppress domestic consumption and corporate profits, diminishing the yen's appeal as a safe-haven asset.
In contrast, the dollar may attract a wave of strong buying interest. Goh said that current short positions on the dollar are still at historically high levels, and if the conflict erupts, leading investors to cover shorts, the dollar could strengthen further. This would also increase the attractiveness of other safe-haven assets like US Treasuries and gold.
Gold and the Dollar May Rise Together, Increasing Pressure on the Fed
In addition to the dollar, traditional safe-haven asset gold may also see a significant uptick due to rising uncertainty. If the Middle East situation evolves into a broader military conflict, global investors will continue to shift to safe-haven assets, putting substantial pressure on global stock markets.
At the same time, the US Federal Reserve (Fed) may face an increased challenge in managing inflation. With high oil prices, the US could experience another wave of imported inflation, especially in the current environment where tariffs have already pushed up prices, suggesting that inflationary pressures could be more persistent than the market expects.
Goh analyzed: "Ongoing conflict not only dampens global confidence but may also make the Fed more hesitant in its rate-cutting path." As the Fed evaluates the upward risks to inflation posed by the Trump administration's tariffs, the addition of geopolitical factors might delay its policy adjustments.
Market Focus Shifts to Energy Market and Policy Response
Current oil price movements will serve as an important indicator of risk sentiment. If Brent crude prices remain consistently above $90 per barrel, the market may more broadly price in the impact of geopolitical conflict on global economic growth and inflation trajectories.
Additionally, the currency market will closely monitor whether Fed officials express concerns about geopolitical risks in future statements and anticipate any changes this might bring to interest rate projections and economic forecasts.
