Is the USD Still a Safe Haven? 

On June 13th this year, when Israel launched airstrikes on selected targets in Iran, oil prices surged amid supply worries. The USD/JPY forex pair dropped from the area of 146 to about 143 because traders bought up the yen as a safe haven response to the escalating conflict. This was despite the fact that, normally, higher oil prices are bearish for Japanese currency since they bode badly for the domestic economy (which depends heavily on oil imports). The power of risk in drawing traders to the yen had overwhelmed the structural Japanese economic weakness implied by higher oil prices.  

However, this didn’t last for long. By June 20th, when oil prices were still elevated and US Treasury yields were starting to rise, the dollar reclaimed some of its strength against the yen, with the USD/JPY returning to the level of 145.5. The lesson to be learnt was that, while the yen may initially see safe haven flows from a geopolitical conflict, continually high oil prices inevitably remind traders of the dangers to the Japanese economy, triggering yen bearishness. 

Looking ahead from June, ING believed the USD/JPY was on a medium-term downward trajectory because the yen appeared about 20% undervalued. In the near term, they said that any further oil rallies would damage the yen’s safe haven appeal, restraining its gains against the dollar.  

What, though, have we learned about the safe haven appeal of the USD? 

The Ceasefire Announcement

In the days leading up to June 23rd, when President Donald Trump announced a “complete and total” ceasefire between Iran and Israel, the dollar was propped up by safe haven flows. Upon the announcement, however, oil prices plunged by over 15% in only 48 hours and the dollar went into free fall. Plummeting oil prices were helped along by a decline in US consumer confidence in June, and by the comments of Federal Reserve member John Williams suggesting that interest rates would stay elevated for the time being. Higher interest rates for longer imply restraints on US growth and oil demand, which is bearish for oil prices. From a supply point of view, several OPEC members including Kazakhstan had been increasing oil output, also helping to hold prices down. 

Traders stopped buying safe haven dollars, weakening the USD/JPY exchange rate and, looking forward, “If the ceasefire proceeds as announced, the USD/JPY may gradually move back towards yen appreciation”, said SMBC’s Hirofumi Suzuki.  

Is USD No Longer a Safe Haven?

Even though the USD benefited from safe haven flows before the ceasefire, its gains were not very impressive. Looking back at May and early June 2025, US stocks – a gauge for global risk-on sentiment – rallied, while Treasuries (a primary safe haven destination) enjoyed healthy flows too. However, all the while, the USD displayed a steady trend of losing value. In other words, the dollar neither benefited from the spurt of risk-on sentiment evident in equities, nor (sufficiently) from the risk-off atmosphere caused by simmering Iran-Israel tensions. In terms of currency safe havens, traders were preferring the Japanese yen and the Swiss franc to the USD. ING remarked that there is now “a new normal of structural USD weakness” and “a return of the USD’s safe-haven appeal looks unlikely”.  

As we’ve seen, in times of rising oil prices, the yen also tends to lose its safe haven appeal. Is there, then, any standard safe haven currency available in the market today? Perhaps not, says ING, and, indeed, “local stories can take a more central role in determining which currencies stand to benefit most” from safe haven flows.   

Less Risk Premium on Middle East Tensions

Between June 12th and June 23rd, oil prices rose from about $70 to $81.40 a barrel. Compare this 15% price fluctuation with those caused by previous Middle East crises: The 1973 Arab oil embargo quadrupled oil prices; the 1979 Iran Revolution doubled them; the second Gulf War in 2003 led to a 46% price surge. It seems, then, that oil traders are reacting less drastically to tensions in this region of the globe. One big reason for this is that more and more crude oil is being produced by the USA, Canada, Guyana, Brazil and China. OPEC countries had gone from producing over 50% of the world's oil in the 1970s to only 33% in 2023. 

When it comes to the safe haven appeal of the USD during Middle East tensions, this comes in two forms: a knee-jerk reaction to the shipping threat, and longer-term worries about the effects of higher oil prices on the US economy. Higher oil prices potentially imply hotter inflation and, thus, the need for Fed rate hikes, which hold back the economy. If, however, oil prices are going to be jumping less at the outbreak of Middle East tensions, the implied risk to US economic growth will be lowered, so the USD may receive less safe haven flows for this reason. This is aside from the fact that, even when risk-off sentiment is indeed dominant, traders are increasingly turning to the yen and the Swiss franc. 

Conclusion to Iran-Israel Ceasefire and Forex

We’ve seen reason to believe the USD is decreasingly being viewed as a safe haven currency in forex trading circles. This is with respect to fears of hindered US growth resulting from oil price surges. However, when it comes to news events that suggest immediate, short-term risks to shipping in the Middle East, forex traders may seek out the liquidity of the USD, and especially so when hot oil prices are dampening the appeal of the yen.