After the U.S. "military" intervention, the world is waiting for Iran's response, and the dollar strengthened in the morning.

According to Gate news and Bloomberg reports, the US dollar strengthened in the early session as investors sought to avoid the escalating geopolitical risks following the US attack on Iran.

On Monday, the US dollar rose slightly against the euro and most major Asian currencies. Due to the explosion event that intensified safe-haven demand and concerns over energy supply, crude oil futures prices increased, while US stock futures prices fell. US Treasury bond prices declined, reversing earlier gains.

Diego Fernandez, Chief Investment Officer of A&G Banco in Madrid, stated: "We expect some risk aversion, but it won't be severe. With the absence of the Iranian nuclear threat, the world may be safer, but we still need to observe Iran's reaction and the evolution of the conflict."

(Source: Bloomberg)

Since Israel's first attack on Iran earlier this month, the market reaction has generally been muted: even with the decline over the past two weeks, the S&P 500 index is only about 3% lower than the historical high set in February. As of Monday's early Asian trading, Bloomberg's dollar index has risen slightly over 1% since the attack on June 13.

This is mainly because investors expect the conflict to be localized and not to have a broader impact on the global economy. However, market observers indicate that if Iran responds to the latest developments, such as blocking the Strait of Hormuz (a key passage for oil and gas transport) or attacking U.S. troops in the region, then the momentum could be greater.

"It all depends on how the conflict develops, and the situation seems to be changing every moment," said Yevgeniya Molotova, senior investment manager at Baird Asset Management. "The only way they take this seriously is to block the Strait of Hormuz, as this would affect oil transportation."

Iran vows to impose "permanent consequences" for the recent bombing and states that it reserves all options to defend its sovereignty. At the same time, Israel has resumed attacks targeting military bases in Tehran and western Iran.

Charu Chanana, Chief Investment Strategist at Saxo Bank in Singapore, stated: "This marks a turning point for the market. The question is whether U.S. assets can still command a safe-haven premium."

Nevertheless, the downside potential may be limited as some market participants have been preparing for a worsening of the conflict. Since Israel's attack on Iran on June 13, the MSCI All Country World Index has fallen by 1.8%. Fund managers have reduced their equity holdings, stock prices are no longer overbought, and there is increased hedging demand, which suggests that the likelihood of a deep sell-off at current levels is relatively low.

(Source: Bloomberg)

Since the escalation of the situation, the biggest reaction in the market has been in the oil market. Although the future direction of the crisis remains unclear, traders are still preparing for a surge in crude oil prices once again. On Monday during the Asian session, the global benchmark Brent crude oil briefly soared by 5.7% to $81.40 per barrel, but most of the gains were given back in active trading.

Morgan Stanley's oil analysts have stated that if the issues are resolved quickly, oil prices will fall back to around $60 per barrel, but ongoing tensions could keep prices within the current range. They noted: "Fundamental disruptions in global oil supply, as well as potential impacts on oil transportation in the region, will drive oil prices up significantly." Other analysts from the firm pointed out that the continuous rise in oil prices could trigger a short squeeze in the dollar, although fundamental factors "still indicate that the dollar's strength is waning."

Since the outbreak of the conflict, the dollar has seen an increase, but considering the traditional safe-haven status of the dollar during turbulent times, this increase is relatively small. In recent months, the dollar has been hit hard by President Donald Trump's trade and fiscal policies.

Neil Birrell, Chief Investment Officer at Premier Miton Investors, stated: "The biggest trade right now is shorting the dollar. No one likes the dollar. But traditionally, the dollar is the safe currency of choice for people, and that may be the turning point for the dollar's performance."

What did the Bloomberg strategist say? "If the dollar can maintain its upward trend and break the bearish consensus that has existed since early April, it will make other U.S. assets look more attractive. However, if the dollar's rise proves to be merely a subconscious reaction to the U.S. brief involvement in the Middle Eastern conflict, then the dollar's downward trend may continue."

——Market Real-time Blog Strategist Sebastian Boyd

Since the outbreak of the conflict, the reaction of the $29 trillion U.S. Treasury market has not been so straightforward. Yields initially fell, but quickly reversed due to concerns about a resurgence of inflation. Since June 13, U.S. Treasury yields have changed little overall, with the 10-year Treasury yield rising less than two basis points since then, closing at 4.38% on Friday.

The following are the expectations of strategists and analysts regarding investors' reactions on Monday:

Bob Savage, Head of Market Strategy and Insights at New York Bank in New York.

Last weekend's actions in the U.S. will open a new chapter in the market. Some believe this is inconsequential, as the actions undermine Iran's nuclear ambitions; others view it as the beginning of an escalation in conflict. The coming weeks will be a critical period for investors to navigate conflicting factors such as inflation, economic growth, oil prices, trade tariffs, and deregulation. The movement of the dollar will be influenced by hedging activities and economic data, including durable goods orders and personal consumption expenditures.

TD Securities strategist Jayati Bharadwaj

The US dollar has gained safe-haven buying after a period of time. The root of the tension lies in the Middle East, which has caused the dollar to once again act as a safe-haven currency. Currently, everyone is paying attention to Iran's response and whether they will choose to block the Strait of Hormuz. If they really do so, it will support safe-haven currencies as well as currencies sensitive to oil.

Emmanuel Cau, Head of European Equity Strategy at Barclays Bank

In the short term, the market may be concerned about Iran's retaliatory actions and whether it will block the Strait of Hormuz... The recent crisis in the region indicates that the impact of oil shocks on the stock market is often temporary and usually turns into mid-term buying opportunities. In fact, if this conflict ultimately brings more stability and peace to the Middle East, it could be beneficial for risk assets in the medium term.

Anthony Benichou, Liquidnet Alpha trading department cross-asset sales

Trump cannot afford the continuation of this situation. If oil prices remain high, especially on the eve of the midterm elections, it will become a political dilemma. High oil prices impact ordinary people, exacerbate inflation, and lead voters to turn against him. Therefore, this measure must be swift, precise, and decisive. It is worth noting that the risk premium for oil prices has remained within a controllable range—short-term volatility has surged, but there has been little spillover effect to other regions. If Iran closes the Strait of Hormuz, they will cut off their main source of income—this will actually accelerate their own collapse.

Manish Kabra, Head of U.S. Equity Strategy at Société Générale

Due to the policies of central banks in various countries being much more accommodative than during previous oil crises, the stock market may only see a slight decline. In terms of capital flow, the market also lacks excitement. This will not be like in 2022, when the S&P 500 and European stock markets fell by 20%. We believe that the Federal Reserve may actually overlook any potential oil shocks, so I still think the S&P 500 is likely to reach new highs this year.

UBS Global Wealth Management Strategist Anthi Tsouvali

The risk environment we are currently facing is definitely higher than it was on Friday. The market will react, but the gains in the stock market may still be small. We will certainly see an increase in oil prices. Investors must also consider the impact of rising oil prices on inflation, and if that’s the case, Europe will be hit harder than the United States. The uncertainty this year is already very high, and this incident has exacerbated that uncertainty. Therefore, we will see some volatility, but given the information available at the moment, I don't think this volatility will last too long. So far, we have not seen energy facilities being bombed, and the Strait of Hormuz has not been closed. The market will be grateful for that. Although risk aversion sentiment will definitely rise, I hope this sentiment does not last too long or become too strong.

Ataru Okumura, Senior Interest Rate Strategist at Sumitomo Mitsui Trust Securities

If retaliatory measures continue, the increase in U.S. fiscal spending may lead to rising U.S. Treasury yields and stock prices. During the Iraq War in 2003 and the Gulf War in 1991, the U.S. stock market saw increases as the stimulative effects of massive wartime spending became evident or were anticipated.

Chief Investment Strategist Charu Chanana of Saxo Bank in Singapore

This marks a turning point in the market. While oil and gold prices may surge due to geopolitical risks, the bigger question is whether U.S. assets can still command a safe-haven premium. Rising fiscal risks, institutional pressures, and policy unpredictability may accelerate the fading of American exceptionalism. Trump's decision to bypass Congress has heightened institutional concerns, which could put upward pressure on U.S. Treasury yields and cast doubt on the credibility premium that was once attached to U.S. assets. Beyond the short-term market reactions—rising oil and gold prices and increased volatility—investors will also be watching for the potential closure of the Strait of Hormuz or retaliation against U.S. naval assets. These risks could lead to a significant rise in oil prices, exacerbating inflation uncertainty, and testing the dollar's safe-haven appeal amid growing concerns over fiscal dominance and institutional erosion.

CEO of the Global Chief Investment Office Gary Dugan

We expect the stock market to respond cautiously, despite some downside risks. From a technical perspective, the market has not overextended itself, with many markets fluctuating within 3-5% of their 200-day moving average. Unless oil prices surge significantly, we anticipate that the stock market will hover around current levels.

Analyst Nirgunan Tiruchelvam from Aletheia Capital based in Singapore

There are three scenarios. The tensions in the Middle East escalate sharply: this could lead to the closure of the Strait of Hormuz and trigger a cycle of retaliation. The second is the cessation of hostilities like the end of the war between India and Pakistan last month. The third is that both sides continue low-intensity bombing. We expect that in the first and third scenarios, risk assets will be under pressure. Oil and other commodities will also rise in these scenarios.

President of Prestige Economics Jason Schenker

The level of panic in the global financial markets will depend on the next wave of actions and the potential duration of this conflict. The fog of war may take days or weeks to dissipate, allowing traders to hold unusual positions with conviction. As for bonds, the impact of this conflict could be mixed. While the rise in crude oil prices may limit the Federal Reserve's room to cut interest rates, funds flowing out of the stock market may pour into bonds and U.S. Treasuries as safe-haven assets, thereby pushing up bond prices and lowering bond yields.

Vanda Research strategist Viraj Patel

The recent strike events in the United States this weekend are another reason prompting hedge funds and commodity trading advisors (CTA) to exit their dollar short positions. We believe that one of the biggest painful trades this summer may be the slow rise of the dollar, as the rationale for shorting the dollar has been cast aside. A perfect storm is brewing, sweeping through non-US stock markets—especially the crowded cyclical European and Asian markets. In addition to the ongoing slowdown in cross-border trade caused by Trump's tariff policies (some stock markets seem oblivious to this), the rising geopolitical risks pose another headwind to global economic growth. We believe that as the recent inflow of “hot money” fades and global investors become more cautious, the performance of Europe and emerging markets may lag behind other markets.