Dollar strength is a temporary flight to safety; reversal likely in three-six months, says Neelkanth Mishra

The recent dollar surge isn’t about expectations of a shift in the balance of payments—forecasting that right now is “too hard,” says Neelkanth Mishra, Chief Economist at Axis Bank. Instead, he sees it is as a classic risk-off move.

“It’s just de-risking. People want to get into safe assets, or what was considered to be safe assets 20 years back,” Mishra explains. Market “muscle memory” is kicking in—whenever uncertainty spikes, investors “dump all the speculative back of the dollar”. Thus, sending capital back into the greenback and gold.

Gold’s resilience reinforces this risk-aversion trend. “Gold is behaving much better, which again shows that people are really becoming risk-averse,” he noted.

But Mishra expects the dollar’s strength to be short-lived. “Once some certainty emerges, when people see how this dust may settle, which could take three to six months, then perhaps, this reversal will also begin.”