Bank of America analysts report that the U.S. dollar is effectively the only currency currently serving as a reliable refuge in foreign-exchange markets as geopolitical tensions escalate. Their note, which draws on quantitative models and option-flow information, indicates market positioning has shifted noticeably in favor of dollar exposure.
According to the analysts led by Adarsh Sinha, model outputs suggest investors are increasingly preparing for "a longer war and higher energy prices," a scenario that has nudged positioning toward the dollar. The bank said that "USD should be the main beneficiary," adding that bullish signals have been "triggered vs all other perceived 'safe havens.'"
Option-flow readings reinforce that view, with the bank noting "high demand for USD calls vs all other perceived 'safe havens,'" which it interprets as part of a broader repricing across FX markets.
The analysts flagged a material rise in risks associated with the war in the Middle East. "As the war in the Middle East enters its 3rd week, the risks of a more protracted conflict and permanently higher energy prices have increased meaningfully," they wrote. The note adds that markets were initially "slow to price in such a scenario" but that a repricing is now under way and "should support further USD strength."
Bank of America technical models have also started to identify continuation bearish signals for specific currencies. The Swedish krona and the New Zealand dollar now carry bearish continuation signals in the bank's framework, with the analysts observing that SEK and NZD "tend to sell off on macro shock events." The bank's "FX Signal of the Week" recommends bullish positions in USD/SEK and bearish positions in NZD/USD.
Even currencies typically treated as safe havens have shown signs of weakness versus the dollar. "EUR and JPY have also been in supported downtrends vs the USD for several weeks, and even the mighty CHF has lost its uptrend," the note states. Until there is clearer evidence of de-escalation, the bank concluded, "it seems like USD will reign supreme."
This assessment is grounded in quantitative positioning, option flow and technical signal readings as cited by the bank. The note links the shift in FX positioning directly to an elevated risk scenario tied to the ongoing conflict and the attendant possibility of structurally higher energy prices. Market participants interpreting these signals should expect a continuing focus on dollar strength while uncertainty persists.