The recent rise in the US dollar following the outbreak of conflict involving Iran may not last long, according to a new survey of foreign exchange strategists. Despite the currency gaining momentum in the immediate aftermath of geopolitical tensions, many analysts believe the underlying outlook for the dollar remains uncertain over the coming months.
The greenback strengthened early this week as global markets reacted to escalating geopolitical risks and rising oil prices. The dollar index climbed roughly 1.5 percent as traders moved to close existing short positions that had built up in recent months. These positions had been based on expectations that the US currency would weaken through 2026.
Even with the short term rally, the broader trend has been different. The US dollar has fallen about 12 percent against a basket of major currencies since the beginning of 2025. Currency strategists participating in the latest market survey largely maintained their view that the dollar is likely to resume weakening once the immediate effects of the conflict fade.
A key factor behind the currency’s temporary strength has been the sharp increase in energy prices. Oil prices surged following concerns that tensions in the Middle East could disrupt global supply. Higher energy costs often trigger defensive trading strategies in currency markets, particularly when investors reduce risk exposure and close leveraged positions.
However, analysts note that the recent rise in the dollar does not appear to reflect a traditional flight to safety. In previous geopolitical crises investors typically moved heavily into US assets such as Treasury bonds. In the current environment, demand for some traditional safe haven assets has been less pronounced.
Interest rate expectations also continue to influence currency forecasts. Financial markets no longer anticipate an early summer rate cut from the Federal Reserve, which has provided some short term support for the dollar. Despite this shift, many analysts still expect the central bank to reduce interest rates twice before the end of the year as inflation pressures gradually ease.
Currency forecasts from the latest survey suggest that the euro could strengthen modestly against the dollar in the coming months. The median estimate among analysts indicates the euro may rise toward 1.18 dollars by the end of March and potentially reach 1.20 dollars within six months if economic conditions remain stable.
At the same time, uncertainty surrounding global economic conditions remains high. Analysts say geopolitical tensions, fluctuating energy prices and shifting monetary policy expectations are creating wide variations in currency forecasts.
Emerging market currencies have also faced pressure in recent weeks. Higher oil prices combined with rising global bond yields have increased financial stress across several developing economies, particularly in Asia and Latin America. These factors have encouraged investors to remain cautious as markets continue to react to geopolitical developments.
Economists say the next phase for currency markets will depend on several factors including the direction of the conflict, inflation trends and the Federal Reserve’s monetary policy decisions. Until there is greater clarity, analysts expect foreign exchange markets to remain volatile with the dollar trading within a relatively wide range.
