FX Markets Are ‘Very Anxious,’ Says Rabobank’s Foley

Summary

• The global FX market is in an "anxious" state due to the escalation of conflict in the Middle East.
• In the short term, the US dollar (USD) is the primary beneficiary, acting as the dominant safe-haven asset due to its deep liquidity, with investors prioritizing safety over returns.
• This safe-haven demand is exacerbated by the market's prior positioning, which was already short the USD entering the crisis.
• Traditional safe-haven currencies, the Japanese Yen (JPY) and Swiss Franc (CHF), are currently underperforming and not fulfilling that role.
• The Swiss Franc faces market anxiety over potential intervention from the Swiss National Bank.
• The Yen has been on a weakening trend ("on the back foot") since October and is a source of market anxiety, partly linked to domestic political change.
• High-yielding emerging market (EM) currencies are identified as particularly vulnerable to capital outflows and selling pressure in this risk-off environment.
• The medium-term outlook for the USD is framed as "very complex," with potential structural shifts like "dollarization" and China's push for alternative oil trade settlements being key uncertainties.