Investing.com — BCA Research advises investors to take a tactical long position on the , highlighting ongoing geopolitical risks that position the dollar as a solid hedge.
In a recent report, the investment research firm foresees an aggressive shift in U.S. trade and foreign policy regardless of the outcome of the election, noting that “the global political system is destabilizing.”
According to BCA’s chief geopolitical strategist Matt Gertken, U.S. foreign policy will be tightened, with a reassertion of “a credible threat against its rivals.” This expected shift, combined with escalating global tensions, strengthens the dollar’s appeal as a defensive asset.
The report points to the Middle East as a major flashpoint, particularly the ongoing hostilities between Israel and Iran. Despite recent market reactions indicating stability, BCA warns against this false sense of security.
“Direct hostilities between Israel and Iran are an escalation, not a de-escalation,” Gertken said, underscoring that Israel’s recent actions could signal a deeper conflict.
“Before this year, these two were not involved in direct warfare and Israel did not pursue regime change in Iran,” he added.
With Iran likely to pursue nuclear capabilities amid increased insecurity, BCA suggests that tensions in the region will only continue to rise, posing a risk to global oil supplies and potentially causing another oil shock.
The firm estimates a 40% chance of serious disruption if hostilities escalate, potentially removing millions of barrels from the global market, increasing volatility and boosting the dollar’s safe-haven status.
Outside the Middle East, BCA also identifies increasing geopolitical risks in Asia and Europe. In Asia, North Korea’s alliance with Russia and the possible conflict with South Korea are causing additional instability, while in Europe there is a looming risk of a long-term standoff between the US and Russia over Ukraine.
Gertken notes that European populism could see a resurgence if Trump wins, potentially undermining EU unity and adding further pressure. If Trump were to impose trade tariffs on European allies, it could create a complex trading environment that supports dollar strength as Europe’s political risks increase.
With these dynamics in play, BCA’s position on the dollar is based on a defensive strategy amid the market’s complacency regarding geopolitical risks.
“Global stability continues to deteriorate. But markets are not taking instability seriously, judging by our market-based geopolitical risk indicators,” the report said.
BCA’s tactical recommendation is therefore to “go long the dollar” to limit exposure to these global risks.
