BCA Research advises investors to take a tactical long position on the U.S. dollar, highlighting persistent geopolitical risks that position the greenback as a solid hedge.
In a recent report, the investment research firm foresees a hawkish shift in U.S. trade and foreign policy regardless of the election’s outcome, noting that “the global political system is destabilizing.”
According to BCA’s Chief Geopolitical Strategist Matt Gertken, U.S. foreign policy is set to tighten, with a reassertion of “a credible threat against its rivals.” This anticipated shift, combined with escalating global tensions, reinforces the dollar’s appeal as a defensive asset.
The report points to the Middle East as a key flashpoint, particularly ongoing hostilities between Israel and Iran. Despite recent market responses that suggest stability, BCA warns against this false sense of security.
“Direct hostilities between Israel and Iran are an escalation, not a de-escalation,” Gertken states, underscoring that Israel’s recent actions could signal deeper conflict.
“Prior to this year, these two were not engaged in direct warfare and Israel was not pursuing regime change in Iran” he added.
With Iran likely to pursue nuclear capabilities amid heightened insecurity, BCA suggests that tensions will only continue to grow in the region, posing a risk to global oil supplies and potentially triggering a new oil shock.
The firm estimates a 40% chance of severe disruption if hostilities escalate, potentially removing millions of barrels from the global market, thereby amplifying volatility and boosting the dollar’s safe-haven status.
Beyond the Middle East, BCA also flags rising geopolitical risks in Asia and Europe. In Asia, North Korea’s alignment with Russia and possible conflict with South Korea create additional instability, while in Europe, the risk of a protracted U.S.-Russia standoff over Ukraine looms.
Gertken notes that European populism could see a resurgence if Trump wins, potentially undermining unity within the EU and further pressuring the euro. If Trump were to implement trade tariffs on European allies, it could set off a complex trade environment that supports dollar strength as Europe’s political risks grow.
With these dynamics in play, BCA’s stance on the dollar is grounded in a defensive strategy amid market complacency toward geopolitical risk.
“Global stability continues to deteriorate. But markets are not taking instability seriously, judging by our market-based geopolitical risk indicators,” the report states.
As such, BCA’s tactical recommendation is to “go long the dollar” to mitigate exposure to these global risks.
