Executive Summary
The US dollar trades at DXY 100.5, a 10-month high driven by safe-haven demand from the Iran-US war ("Operation Epic Fury," launched February 28) and an oil shock that pushed WTI above $100/bbl and Core PCE to 3.1% YoY — the highest in nearly two years. DXY has rallied +2.8% in March, its best monthly gain since late 2024, recovering from the September 2025 trough of 95.55 but still trading 3.4% below its April 2025 Liberation Day high of 104.39. Performance is bifurcated: USD has strengthened sharply over 1–3 months on conflict-driven flows but remains weaker over 12 months (DXY −3.4% YoY) as the broader structural bearish thesis — post-peak US exceptionalism, Fed easing cycle, twin deficits — has merely been interrupted, not invalidated. The BIS REER at 106.9 and IMF staff assessment of 10.7% overvaluation confirm the dollar remains fundamentally expensive, yet the war premium, re-accelerating core inflation, and hawkish Fed repricing (bond markets now pricing a possible rate hike) create a powerful near-term floor. The central tension is between the cyclical safe-haven bid that dominates the tactical horizon and the structural overvaluation plus eventual geopolitical de-escalation that dominates the strategic horizon — a classic cross-horizon divergence that demands differentiated positioning. Our headline stance: Tactically Bullish USD with moderate conviction (3/5), strategically Bearish USD with moderate-to-high conviction (3/5), reflecting a conflict-inflated currency trading above fair value that will weaken once the geopolitical premium fades.