(Bloomberg) — Deutsche Bank AG and Wells Fargo & Co. are among banks declaring the dollar\u2019s war-driven haven rally is likely over as the ceasefire between the US and Iran prompts investors to seek riskier assets.<\/p>\n
The dollar wiped out all gains it registered since the US-Iran war began after Tehran announced Friday that the Strait of Hormuz is now \u201ccompletely open\u201d for commercial traffic. The developments dented demand for haven assets like the dollar, which is traditionally seen as an oasis during times of crisis.<\/p>\n
The Bloomberg Dollar Spot Index fell as much 0.6% to its lowest level since Feb. 27. It is now down about 1.9% since the US and Iran agreed to a truce on April 7. Risk-sensitive currencies, led by those from Scandinavia, New Zealand and Australia, are leading gains versus the greenback in that period, while the S&P 500 Index has recovered to set new record highs this week.<\/p>\n
Analysts are arguing it\u2019s time to embrace bets against the greenback, and global investors seem to be doing just that. They\u2019ve boosted dollar hedging ratios to a two-year high, according to State Street Corp. In the options market, meanwhile, confidence in the dollar has faded, with positioning the least bullish in weeks.<\/p>\n
With the haven aura fading, investors are once again focusing on the headwinds that drove the dollar down 8% last year \u2014 its worst performance since 2017 \u2014 including the prospect of Federal Reserve interest-rate cuts.<\/p>\n
\u201cThere is clear rotation out of safe havens like the dollar back into risky assets,\u201d Kathleen Brooks, research director at broker XTB in London, wrote in an email. \u201cIf the US-Iran conflict does come to a resolution soon, I see a longer period of weakness for the dollar ahead.\u201d<\/p>\n
Srait in Focus<\/p>\n
The Strait of Hormuz \u201cis declared completely open\u201d for all commercial vessels for the remaining period of a ceasefire, Iran\u2019s Foreign Minister Abbas Araghchi said Friday. Oil prices declined.<\/p>\n
Some analysts warned, however, that it may be too soon to bet on dollar weakness. Citigroup Inc. currency analysts on Thursday said the risk-reward favored betting on dollar strength. Persistently high commodity prices will cap gains in risk assets, supporting bond yields and the dollar, they said.<\/p>\n
The easing in tensions has reignited the wariness toward the US currency that\u2019s shaped conversations around it since President Donald Trump took office last year.<\/p>\n
At Wells Fargo, strategists recommended buying the Swedish krona versus the dollar. Deutsche Bank advised selling a broad-based measure of the US currency, seeing scope for the euro to eventually eclipse $1.20 for the first time since January, from about $1.18 now. For their part, JPMorgan Chase & Co. strategists said last week that \u201cthe dollar appears to be emerging worse-off on a medium-term basis from the conflict,\u201d partly because of high spending on the war.<\/p>\n
Story Continues <\/p>\n
Fed Independence<\/p>\n
Brooks at XTB lays out some of the challenges for the US currency, beyond expectations for the Fed to eventually cut rates while markets anticipate hikes elsewhere.<\/p>\n
She points to potential worries about the Fed\u2019s independence, with Trump\u2019s threat this week to fire Chair Jerome Powell if he doesn\u2019t leave that post \u201cin time,\u201d creating a possible scenario where the president appoints an ally as interim chair while nominee Kevin Warsh awaits confirmation.<\/p>\n
\u201cThis could lead us back to the dollar debasement theme, which weighed heavily on the dollar last year,\u201d Brooks said.<\/p>\n
In the background, there\u2019s also the view among some on Wall Street that Trump would like to see a weaker dollar to support US exports, although the administration has repeatedly avowed the long-standing US \u201cstrong dollar\u201d policy.<\/p>\n
Bearish Take<\/p>\n
Amid the shift in market sentiment, asset managers have added to bearish dollar trades in the first couple of weeks of April, based on a Morgan Stanley model. A Bank of America Corp. survey from April 3 to April 9 \u2014 overlapping the start of the ceasefire \u2014 shows that the second-highest conviction trade among fund managers this year, behind owning bonds, was to short the dollar.<\/p>\n
\u201cInvestors view the Iran war as more of a level shift to the dollar path for 2026 than a change in the trend,\u201d BofA strategists including Ralf Preusser and Meghan Swiber wrote in a note this week.<\/p>\n
The extent to which international investors strip out the currency risk from their US holdings \u2014 by using derivatives to bet against the dollar \u2014 is another potential trigger of greenback weakness.<\/p>\n
Data from State Street, one of the world\u2019s largest custodian banks, shows they\u2019re piling into that protection, boosting hedging ratios on the US currency to 63% in the wake of the ceasefire announcement.<\/p>\n
\u201cMarkets are almost treating it as if the conflict didn\u2019t happen,\u201d said Andrew Hazlett, a foreign-exchange trader at Monex Inc.<\/p>\n
What\u2019s more, a resolution of the war, by reducing concerns about economies outside the US, may spur investors to buy more international assets.<\/p>\n
\u201cThe drivers for the diversification trade are there underneath, but they are just overshadowed by other worries right now,\u201d Beata Manthey, head of European equity strategy at Citigroup, said on Bloomberg Television this week.<\/p>\n
–With assistance from George Lei.<\/p>\n
(Updates throughout with pricing and commentary)<\/p>\n