The original version of this article first appeared in The Business Times.
Everyone is focused on the war, the Fed, inflation, and the US dollar. Are we focusing on the right things right now?
Let’s start with what we know. The Iran war has produced the largest oil supply disruption in the history of the global energy markets, taking 12 million barrels per day off the market—more than the two 1970s oil crises combined. Brent crude has surged more than 50% in just one month. Although countries are releasing strategic petroleum reserves at a record pace, fuel and potentially energy shortages are rippling through Asia. The expected rise in prices, combined with the likely economic slowdown, is increasing the risk of stagflation.
The fallout across financial markets has been swift but surprisingly measured. Global equities are only down by single digits year-to-date. Bond yields have risen on renewed inflation fears. Gold has rebounded somewhat on safe-haven demand together with the US dollar, though both remain off their highs after a sharp selloff, which is a similar story for Bitcoin. These are the facts, but what does that mean for investors?
Correlation is not causation and narrative is not analysis
The temptation during a crisis is to draw a straight line from geopolitical events to investment conclusions, and a lot of the focus and concern still centres on the US dollar. With the US at war, these concerns are more pronounced as President Trump requests a record $2.2 trillion budget, of which $1.5 trillion is earmarked for defence, which may worsen its fiscal situation and reignite concerns about the dollar’s position as a reserve currency.
However, the US is a net exporter of oil and is less directly exposed to energy-driven shocks than many peers. The dollar has, in fact, strengthened recently, reflecting its continued appeal as a safe-haven asset in times of uncertainty.
The US Dollar Index (DXY) sits at 100 today. Over the past 12 months, it is down only 2.7%, a remarkably modest move given the geopolitical turmoil and the widespread expectations of a dollar collapse that dominated financial commentary throughout 2025. The DXY traded above 109 in January 2025, fell to the mid-96s, but has since recovered approximately 5% from the lows of September 2025 to the current level. Through all of the noise and clamour, it has been essentially flat for the past year.
Source: Endowus Research, Bloomberg
The dollar is not dead and its resilience has consequences
However, here is an inconvenient truth for those who predicted the demise of the US dollar: its recent strength, driven by safe-haven demand and expectations that the Federal Reserve will keep rates higher for longer, has actually acted as a brake on the very assets that are supposed to replace it.
Gold and Bitcoin are both denominated in US dollars. When the dollar strengthens, it creates a headwind for these assets in local currency terms, even as their USD prices rise. This is one reason gold’s rally, while impressive, has been more measured than many expected in a genuine energy crisis. Bitcoin, despite the narrative of being a digital safe haven, has delivered returns roughly in line with gold and well off the highs of last year — hardly the exponential outperformance to the moon that its advocates promised.
None of this is to say the dollar does not face long-term structural challenges. The US fiscal trajectory is unsustainable and the weaponisation of the dollar through sanctions has given other nations reason to seek an acceleration to find alternatives. But the gap between “long-term structural concern” and “imminent collapse” is enormous — and investors who confuse the two are making decisions based on fear, not evidence.
What the science tells us about currency and investing
Behavioural finance literature is clear on why investors consistently overreact to currency movements. Recency bias causes us to extrapolate the recent past into the indefinite future: if the dollar has weakened over the past quarter, our minds project that weakness forward in a straight line. Availability bias means the most vivid, alarming headlines — about de-dollarisation, about BRICS alternatives, about the end of American hegemony — dominate our thinking, even when the data tells a more nuanced story.
Three decades of institutional investing experience have taught me this: making directional bets on currencies is extraordinarily difficult. Even the largest, most sophisticated institutional investors rarely attempt it, and even more rarely get it right. The foreign exchange market is the deepest, most liquid, and most efficient market in the world. The idea that an individual investor can consistently outperform it, or even the stock market, is a fantasy.
The only legitimate reason to take a currency view is when you have future liabilities denominated in a specific currency — a mortgage, retirement expenses, medical costs, or children’s education. That is not speculation. That is asset-liability matching, and it is the foundation of sound financial planning.
What Hong Kong investors should actually do
Rather than worrying about the direction of the US dollar, as Hong Kong investors, you should focus on the unique realities of the HKD-USD peg and what you can control.
First, the Hong Kong Dollar is pegged to the US Dollar, so local investors should not worry about currency risk. They should rather concentrate on the underlying quality of their global investments.
Second, investors should think about their future liabilities. The biggest risk is not that dollar depreciation, but the potential for inflation to erode purchasing power in the long term, that healthcare costs may burn savings, and that housing prices will continue to climb.
Third, diversify. The best antidote to the anxiety of any single geopolitical event, currency move, or asset class drawdown is a portfolio that does not depend on getting any one call right. Diversification remains the only free lunch in investing, and it is as relevant during the Iran war as it was ever before.
The physicist Richard Feynman once observed that the first principle of science is that you must not fool yourself — and you are the easiest person to fool. In investing, the equivalent principle is this: the market is not trying to tell you a story. You are telling yourself a story about the market, and that story will determine whether you act wisely or foolishly.
The story of the US dollar in 2026 is not one of collapse or crisis. It is one of resilience, complexity, and the enduring truth that short-term noise almost never matches the long-term signal. The investors who will do best are not the ones who correctly predict the next move in the US Dollar Index. They are the ones who build a diversified portfolio aligned to their goals, stay invested through uncertainty, and refuse to let the fog of war become the fog of their financial future.
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