DBS analysts Philip Wee and Chang Wei Liang assert that the US Dollar's (USD) broader downtrend has been interrupted by war-related haven demand and elevated oil prices, creating a temporary geopolitical floor for the currency amid Operation Fury [1]. Despite this short-term support, the analysts highlight structural risks stemming from questions over Federal Reserve (Fed) independence and US fiscal sustainability, which are prompting global investors to reassess the USD's status as a risk-free asset [1].
The unilateral US-Israel strikes have led to a rare consensus of dissent among G7 allies, including France, Germany, and Italy, who have refused to provide naval support in a conflict they were not consulted on. This signals a de facto abandonment of the American security umbrella and increased US isolation [1]. The closure of the Strait of Hormuz, driven by US actions, has inflicted global economic and inflationary pain, further motivating investors to reconsider their exposure to US Treasury bonds [1].
DBS warns that the "American Hubris" narrative is evolving from a diplomatic critique to a primary market driver, suggesting that the era of unquestioned US financial hegemony is being eroded by predatory US foreign and economic policies that alienate both allies and other countries [1]. The analysts anticipate that once oil flows resume, capital should shift towards currencies with stronger fundamentals, implying a potential future decline for the USD [1].
CONCLUSION
The USD is currently supported by war-driven haven demand and elevated oil prices, but structural risks related to Fed independence and US fiscal sustainability are undermining its long-term outlook. Growing dissent among G7 allies and global investor reassessment of US assets signal a weakening of US financial hegemony. DBS expects capital to move towards fundamentally stronger currencies once geopolitical tensions ease and oil flows normalize.