OCBC’s Sim Moh Siong and Christopher Wong argue that conditions for a sustained US Dollar rebound remain absent, but heavy speculative shorts leave the currency vulnerable to a squeeze. Safe-haven demand and US net energy exporter status could temporarily lift the Dollar if US–Iran tensions escalate and Oil prices spike, though President Trump is seen as unlikely to allow a destabilising escalation before midterms.
Positioning leaves USD exposed to spikes
“While conditions for a sustained USD rebound are still lacking, positioning creates squeeze risk.”
“With CFTC data showing heavy USD shorts, safe-haven demand and the US’s position as a net energy exporter could push the USD temporarily higher if US–Iran tensions escalate and oil prices spike.”
“That said, President Trump is unlikely to allow a sharp escalation that undermines US financial markets heading into the midterms.”
“One implication of IEEPA’s invalidation is that it may reduce the USD’s medium-term risk premium, as alternative tariff authorities are typically less discretionary, making rapid “tariff on/tariff off” swings less likely.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/usd-squeeze-risk-on-geopolitical-escalation-ocbc-202602241431
