(March 18): The dollar and US stocks are at their most inversely correlated in nearly a year, reasserting the typical relationship between the assets associated with the greenback’s haven status.
A Bloomberg gauge of the dollar is up nearly 2% since war broke out in the Middle East late last month, while the S&P 500 Index is down more than 2%. That’s brought one measure of the short-term correlation between the two to its most negative since early 2025.
Strategists pin the moves on the relationship between the dollar and the surging price of crude, which has benefited the US as the world’s top oil producer. Should the trend stick, it will help the dollar to act as an important tool for traders looking to hedge asset exposure in their portfolios — a role the greenback has struggled to fulfill for months.
“For some large real-money investors, the most important factor is correlation,” said Andrew Watrous, a Group-of-10 currency strategist at Morgan Stanley. For most of the last two weeks, “there has been a really pronounced negative correlation between the dollar and stocks.”
For years, the dollar tended to move inversely to US stocks, with investors piling into the currency when appetite for risky assets soured and vice versa. That relationship was upended last year, after the launch of President Donald Trump’s universal tariffs in April catalyzed a stampede to sell US assets and drove the dollar to its worst first-half performance since the 1970s.
One key reason for the correlation’s return has been the US’s position as the world’s top oil producer and the dollar’s role as the currency for global crude trade, with the more than 40% rise in prices for West Texas Intermediate buoying demand for the currency.
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“The one G10 currency that is both a safe haven and tied to an energy-exporting economy is the US dollar,” said Morgan Stanley’s Watrous. “It is intuitive that the dollar has gone up.”
At the same time, the rally in oil has revived fears of inflation and pushed investors to curb expectations for how much the Federal Reserve will be able to lower interest rates, weighing on stocks. Strategists at Deutsche Bank including Parag Thatte and Binky Chadha noted last week that the inverse correlation between the S&P 500 and oil prices has been “near perfect.”
In addition to surging energy costs, the dollar has received a boost from US investors bringing home money amid the geopolitical uncertainty, said Bob Savage, head of markets macro strategy at BNY, in a Monday note to clients.
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Of course, it’s hard to say how long the dollar’s resurgent haven status may last — especially if the spike in oil prices quickly recedes to leave investors again preoccupied with tariffs, US fiscal concerns and other factors that soured them on the currency in the first place. An alternative scenario, meanwhile, sees a prolonged conflict that leaves oil prices elevated and hurts US growth, eventually weakening the currency.
“The price moves have proven compellingly dollar bullish,” wrote Bloomberg Intelligence strategists Audrey Childe-Freeman and Thinh Nguyen. “But it’s tricky to assess how much of this was driven by some short-covering flows and how much marked the beginning of a new sustainably upward trend.”
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