Analysts at BofA Securities attribute the recent strengthening of the U.S. dollar primarily to a spike in oil prices triggered by an intensifying conflict involving Iran, rather than to a loss of faith in U.S. institutions or policy. The bank's strategists argued that the surge in energy prices has reasserted the greenback's safe-haven appeal.
At 06:38 ET (11:38 GMT) on Thursday, the Dollar Index - which measures the greenback against a basket of six other currencies - rose 0.3% to 90.01, keeping it close to a three-month high reached earlier this week. BofA strategists Adarsh Sinha and Alex Cohen highlighted in a client note that the dollar's gains have been notable even relative to gold, an asset that investors often flock to during crises.
The analysts pointed to a run-up in oil and natural gas prices after joint U.S. and Israeli strikes on Iran last weekend. That confrontation has expanded to include strikes by both sides across multiple countries in the Middle East, contributing to a disruption of energy flows that typically move through the Strait of Hormuz.
Roughly a fifth of the world's oil and liquefied natural gas pass through the strait south of Iran, making it a critical chokepoint for global energy shipments. Observers reported traffic building on both approaches to the narrow waterway as the disruption took hold. President Donald Trump has suggested that the U.S. could provide insurance and escort services for vessels in an effort to ease the resulting bottleneck.
BofA's team emphasized that, because the primary driver is an oil price shock, investors are reacting with traditional risk-off positioning rather than reassessing allocations to the U.S. or seeking hedges against U.S. policy risk. "The return of traditional 'risk off' (versus debasement) price action is consistent with the underlying driver - oil shocks - not impacting U.S. capital allocation/hedging decisions," they wrote.
The strategists contrasted this episode with earlier episodes when policy actions or rhetoric altered investor sentiment toward the dollar. They cited past moves, including the imposition of broad trade tariffs and even provocative suggestions such as taking over Greenland, as examples that previously encouraged capital to move away from the greenback.
Looking ahead, BofA's analysts expect the dollar to maintain its strength into the first quarter, supported by resilient U.S. economic data. However, they also said the currency is likely to decline in value at a later stage, though they did not specify timing beyond that expectation.
Contextual note: The analysis links currency moves to energy-market disruption and investor risk appetite, rather than to shifts in U.S. policy credibility. The strategists draw a distinction between risk-off flows driven by commodity shocks and capital reallocation prompted by policy concerns.