The dollar’s traditional relationship with equity market volatility has been revived by the war in Iran, a signal that haven-seeking investors are finding safety in the US assets they snubbed after last year’s tariff turmoil.
The greenback’s correlation to the CBOE Volatility Index has turned increasingly positive since the start of the war and is now approaching levels last seen in 2024. That marks a return to the trend seen for much of the past five years, with the dollar rallying in periods of volatility and falling when equity markets are calmer.
That relationship was upended by US President Donald Trump’s universal tariffs last year, which prompted global investors to reconsider the merits of high exposures to US assets. For much of 2025, if US equity market jitters were on the rise, more often than not the dollar was falling in concert.
During the conflict in the Middle East, the dollar has been “significantly” more correlated to equity market volatility than to oil prices, according to Edoardo Campanella, a research economist at UniCredit SpA.
“When global risk aversion abruptly spikes, investors revert to the most-liquid currency in the system: the greenback,” Campanella wrote in a note last week.
For currency strategists at Scotiabank, the dollar-VIX relationship is now worth watching to gauge the currency’s reaction as the US moves to blockade the Strait of Hormuz, especially if stock swings are dampened in the days ahead.
“Broader dollar losses may extend if the latest developments in the Gulf region do not prompt a significant and extended rebound in the VIX,” Shaun Osborne, chief currency strategist at Scotiabank, said on Monday.
Still, gauging the extent to which haven buying is supporting the greenback is not an easy task. It’s complicated by a whole range of factors — from central bank policy to relative asset performance to hedging decisions. By at least another metric, the cross-currency basis, demand for the dollar is ebbing amid the tenuous ceasefire between the US and Iran.
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