Standard Chartered Warns of Long-Term Downside Risks for US Dollar

The British banking group Standard Chartered has warned that the United States Dollar faces long-term downside risks, despite its recent gains driven by rising demand for safe-haven assets amid escalating geopolitical tensions in the Middle East and a surge in oil prices.

In a recent report, the bank noted that the dollar has benefited from investors shifting toward safer assets during periods of market uncertainty. This trend helped push the U.S. Dollar Index higher, reinforcing a key resistance level near 100 points.

However, the report cautioned that the scope for further upside appears limited, as technical indicators suggest the U.S. currency is approaching overbought territory, which often precedes a period of consolidation or correction.

According to the bank’s analysis, ongoing tensions in the Middle East have contributed to higher oil prices, raising concerns about global inflationary pressures.

At the same time, recent U.S. labor market data for January showed continued strength, reinforcing signs that the American job market remains resilient.

These factors have temporarily supported the dollar, as investors typically turn to the greenback during periods of economic and geopolitical uncertainty.

The report added that recent developments have reduced expectations for near-term monetary easing by the Federal Reserve.

Financial markets are now pricing in fewer than two interest-rate cuts of 25 basis points each by the end of 2026, reflecting expectations that the central bank may keep borrowing costs elevated for longer than previously anticipated.

Rising inflation expectations have also increased the likelihood that U.S. interest rates will remain higher for an extended period, reinforcing the “higher for longer” policy outlook.

Data from inflation-swap markets show that short-term inflation expectations in the United States are rising faster than long-term forecasts.

One-year inflation expectations have increased more sharply than five-year expectations, a pattern that analysts at Standard Chartered say is consistent with their view that the current geopolitical tensions could prove relatively short-lived.

In currency markets, the bank noted that the U.S. dollar against the Swiss franc is approaching a resistance area near 0.79, reflecting the broader movements in the dollar index and safe-haven demand dynamics.

Despite the dollar’s recent momentum, the bank concluded that structural downside risks remain in the longer term, suggesting that the currency’s current strength may not be sustained once geopolitical pressures ease and global monetary conditions evolve.