$US still safe-haven currency – BlackRock

Mike Taylor

Managing Editor and Publisher

30 June 2026

The BlackRock Investment Institute (BII) has claimed vindication for its 2025 decision to back the so-called “safe haven” status of the US dollar.

In its weekly market commentary, the BII said recent market moves had supported its view with the US dollar index at a one-year high after the Federal Reserve stoked expectations for a rate hike this month.

It said the question is no longer whether the dollar can hold its ground, but what dollar strength means for risk assets, particularly emerging markets (EM).

The BII said it sees selectivity as key to emerging markets

It said two factors have driven the US$’s recent rebound – First, markets have increased expectations for a U.S. interest rate hike this year, widening interest rate differentials in the dollar’s favour. Second, stable perceived risk around U.S. assets, together with strong U.S. equity performance and portfolio flows, has supported demand for the dollar.

“After falling sharply following President Donald Trump’s tariff announcements in April 2025, the U.S. dollar index has recovered more than half of that decline, challenging the narrative that it had entered a new era of sustained dollar weakness,” it said.

“Much of the rally has come as markets reassessed the outlook for Federal Reserve policy. Yet we think some of the hawkish repricing in rate expectations may be overdone. Our analysis suggests current dollar levels are broadly in line with underlying fundamentals, making a sustained appreciation cycle less likely.”

The BII said the Federal Reserve remains central to the dollar’s near-term outlook and while markets viewed new Federal Chair, Kevin Warsh’s first meeting as a hawkish surprise, BII thinks the meeting was less about signalling a more restrictive course than preserving optionality.

“That means current rate projections should be viewed as a snapshot rather than a commitment. That supports a stable dollar backdrop,” it said.

“A stable dollar does not preclude opportunities in emerging markets. Instead, it leaves greater scope for country-specific fundamentals to differentiate returns. EM assets have performed well even without the dollar weakness that has typically accompanied periods of EM outperformance.”

“The dollar still matters, particularly for economies with large external financing needs, but domestic factors and structural opportunities are becoming increasingly important,” the BII said.