Every time there’s a major geopolitical conflict, like in the Middle East this week, investors pile money into safe havens. The U.S. dollar is about as safe as investments come.
Since the war started, investors have been wanting dollars even more than usual. The increased demand pushed up the price of the greenback, meaning it’s been strengthening relative to other currencies.
The second most attractive safe-haven investment in the world is probably the U.S. Treasury. And while it follows that investors would want more of that, just like they want more dollars, the rate on the 10-year U.S. Treasury has unexpectedly been headed up — meaning prices have been falling and investors have been getting rid of T-bills and notes.
Brendan McKenna, an international economist and foreign exchange strategist at Wells Fargo, said investors who want to pile into the safety of the U.S. dollar have plenty of options.
“You could find a money market fund, that’s a relatively safe place to go to,” he said.
McKenna said investors could also park their money in corporate bonds — which, like mortgage-backed securities, need dollars to buy.
“You could park it in just a savings account and you’re relatively safe there,” he said.
Investors have been considering those options, but they’re not exactly thrilled about investing in U.S. Treasuries right now. Sebastian Mallaby, a senior fellow at the Council on Foreign Relations, said their stability is threatened by the U.S. administration — from President Donald Trump’s tariffs, his attacks on the U.S. Federal Reserve’s independence, his intervention in Venezuela, and now his actions in Iran.
“You just have this series of ad-hoc policies that undermine the idea that there’s a stable hand guiding the system,” Mallaby said. “And when you don’t believe that anymore, you’re not going to want to hold U.S. government debt, because you don’t trust the U.S. government.”
But Mallaby said investing in Europe or Asia is looking risky, too, especially since the war is making energy more expensive.
“Both the East Asian economies and Europe are big energy importers, so a spike in the cost of energy is very, very bad for them,” he said.
Compared to that, the U.S. economy looks relatively more stable. Christopher Vecchio, head of futures and FX at the research company TastyLive, said investors are basically just sitting on their dollars.
“If you’re someone who, for example, is in Europe — and this really is more of a question for foreign investors and traders — I may sell out of my U.S. Treasurys, and instead of converting the money back into Euros, I could just keep them in U.S. dollars,” he said.
Vecchio said the dollar will always be in high demand, no matter what investors think of U.S. Treasuries — because the global economy runs on dollars.
