Middle East situation boosts demand for safe-haven assets, dollar long bets hit over one-year high, yen short positions rise to the highest level in 17 years.

With the continuous tension in the Middle East and significant fluctuations in international oil prices, funds in the global foreign exchange market are accelerating their flow back to the US dollar. According to data released by the US Commodity Futures Trading Commission (CFTC) last Friday and compiled by the media, as of the week ending June 9, hedge funds, asset management institutions, and other speculative funds held a net long position in the US dollar of 27.8 billion US dollars, reaching the highest level since February 2025, indicating that market optimism about the future trend of the US dollar has reached a high point in over a year. Since the end of February this year when the US and Israel launched military actions against Iran, the US dollar has once again strengthened its position as the global primary safe-haven asset. Against the backdrop of escalating geopolitical risks, soaring international oil prices, and continued strong US economic data, an increasing number of investors are starting to bet on a further strengthening of the US dollar. Data shows that since the outbreak of the Middle East conflict, the US dollar spot index, which measures the performance of the US dollar against major currencies, has risen by approximately 1.6%. At the same time, the rise in international oil prices has also become one of the important factors supporting the US dollar. Historical experience shows that there is often a strong positive correlation between the US dollar and oil prices, especially in periods of rapid energy price increases, as market expectations for high US interest rates tend to strengthen simultaneously, thereby driving the US dollar's strength. Alex Cohen, a foreign exchange strategist at Bank of America, said: "From a fundamental perspective, the current environment still favors the rise of the US dollar." He pointed out that the stronger-than-expected performance of the US economy, ongoing inflation pressures, and inflows of safe-haven funds together constitute the main support factors for the US dollar at the moment. It is worth noting that there has been a clear shift in market sentiment towards the US dollar. CFTC data shows that speculative funds have maintained a net long position in the US dollar for 13 consecutive weeks. Prior to the outbreak of the Middle East conflict, the market sentiment was completely opposite. At that time, speculative funds held approximately 22 billion US dollars in short positions on the US dollar, generally betting on the Federal Reserve cutting interest rates and the US dollar weakening. Now, with the stronger-than-expected performance of the US economy and the market recalculating expectations for the Federal Reserve's possibility of further interest rate hikes, investors' judgments on the outlook for the US dollar have made a clear reversal. Recent US employment data has been an important catalyst for driving this change. The addition of jobs in the US in May significantly exceeded market expectations, reinforcing investors' confidence in the resilience of the US economy and prompting the market to re-adjust its expectations for the Federal Reserve's policy path. Currently, the interest rate futures market has already priced in the possibility of at least one rate hike by the Federal Reserve this year. In addition to the US dollar, the Japanese yen has also become a focus of attention in the foreign exchange market recently. The latest data shows that leveraged funds have further increased their bearish bets on the Japanese yen, with related short positions reaching the highest level since 2017. Currently, the US dollar to Japanese yen exchange rate is hovering around 160, which is also an important zone where the Japanese government intervened in the currency market earlier this year to support the yen. Market participants believe that the continued widening of the interest rate differential between the Bank of Japan and the Federal Reserve remains the main reason suppressing the performance of the Japanese yen. Despite the Japanese government expressing concerns about the depreciation of the yen several times in the past, in the context of high US interest rates, the yen still faces significant pressure in the short term. Analysts point out that CFTC position data is considered an important barometer for observing the sentiment of the global $9.5 trillion foreign exchange market. The ongoing climb in the US dollar long positions reflects the general belief among institutional investors that, under the combined influence of geopolitical risks, rising oil prices, and relatively strong US economic performance, the US dollar is still expected to benefit from inflows of safe-haven funds. However, some opinions believe that if the situation in the Middle East eases in the future, oil prices fall, or US economic data starts to weaken, the currently crowded US dollar long positions may face profit-taking pressure, thereby increasing the risk of exchange rate volatility.