Traders have more reason to buy a dollar they value

April 15 – Risk aversion stemming from fear about an escalation of the conflict in the Middle East gives traders more reason to buy a dollar they already value.

The dollar has been in high demand this year as traders adjust bets to reflect the likelihood that the U.S. interest rate stays high. They have purchased more than USD 30 billion since January. Speculators have flipped from a USD 12 billion wager against the greenback to a USD 17 billion bet that it rises as expectations for the first U.S. interest rate cut of a 2024 easing cycle are pushed from March to September.

The uncertainty stemming from fears about a growing conflict in the Middle East, the continuing war in Ukraine and China’s economic woes gives traders plentiful cause to buy more dollars.

Not only is the dollar considered safe – and can soar in value even when the United Sates is at the center of any concerns – it is also the highest-yielding major currency. Those holding dollars are being paid to do so while they wait to see how situations develop.

Currently there are three big bets against the dollar that are more likely to be unwound, boosting it further. Gold could also benefit.

(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)