Hedge funds and macro traders are reassessing their bearish bets on the US dollar amid escalating Middle East tensions, following US strikes on Iran that rattled global markets but failed to trigger a full-blown risk-off exodus, according to a report by Bloomberg.
While the dollar strengthened modestly against most major currencies in Asia on Monday, the muted equity market reaction to the conflict has perplexed options traders who expected sharper moves in risk assets. Brent crude surged as much as 5.7% before paring gains, while US equity futures edged lower and Treasuries reversed early safe-haven buying.
For hedge funds, the bigger story is the potential unwinding of crowded short dollar positions. “This weekend’s US strikes are another reason for hedge funds and CTAs to rush toward the exit on their bearish USD bets,” said Vanda Research strategist Viraj Patel, calling a slow grind higher in the greenback one of the summer’s biggest potential pain trades.
The conflict adds fuel to an already jittery macro backdrop marked by slowing global trade, US tariff rhetoric, and concerns about US fiscal dominance. Traders are now recalibrating their exposure, particularly in commodities and FX. Short-term options activity has picked up around oil-sensitive currencies and haven plays like yen and gold, but euro and EM positions are beginning to wobble as geopolitical risk becomes harder to price.
Analysts note that a decisive Iranian retaliation — particularly any move to block the Strait of Hormuz — could lead to a sharp repricing across oil, inflation expectations, and interest rate forecasts. But so far, hedge funds appear to be taking measured steps, rotating exposures rather than triggering widespread deleveraging.
