Dollar's Safe-Haven Status Unshaken Despite Iran War Premium Reversal

The dollar has fallen to 98.07, only 0.5% above its pre-conflict level, after initially surging to a 10-month high of 100.64 following the US-Iran conflict. Investors have returned to US stocks as risk appetite improved, with the S&P 500 nearing its January record high. Foreign holdings of US Treasuries increased to $9.31 trillion in January, a $40 billion rise from December. Foreign demand for US Treasuries is up 8% year-over-year despite rising US deficits. Market expectations for Fed rate cuts in 2026 have dropped from two to at most one due to inflation from the war. The two-year German-US bond spread is 1.135 percentage points, still favoring US assets over European ones. The dollar remains supported by strong demand for US assets and interest-rate differentials favoring the US.