The Overlooked Scenario That Could Send the USD Higher
For years, the consensus has seemed obvious.
The US dollar is doomed to weaken.
America’s national debt keeps growing, fiscal deficits remain massive, central banks continue buying gold, and many countries are actively exploring ways to reduce their dependence on the dollar.
At first glance, the conclusion appears straightforward:
the future belongs to a less dollar-centric world.
But markets have a habit of surprising investors.
They do not surprise when the expected scenario unfolds.
They surprise when reality diverges from expectations.
And what if today’s biggest risk is not a weaker dollar, but a significantly stronger one?
I am not arguing that this scenario will necessarily happen.
I am simply suggesting that it deserves more attention than it currently receives.
When Everyone Thinks the Same Thing
Investors love certainty.
Today, the bearish case against the dollar is well known:
- Record US government debt.
- Persistent fiscal deficits.
- De-dollarization initiatives.
- Growing central bank gold purchases.
- Concerns about America’s long-term influence.
All of these arguments are legitimate.
However, there is one question investors should ask themselves:
How much of this is already priced in?
Financial history teaches us that major market surprises often emerge when a dominant consensus leaves little room for alternative outcomes.
Not because the consensus is necessarily wrong.
But because everyone is already positioned for it.
Is America Quietly Rebuilding Its Industrial Base?
Over the past several years, Washington has increasingly focused on strengthening domestic production.
Tariffs, industrial policy, semiconductor investment, artificial intelligence infrastructure, energy development and strategic manufacturing incentives all point in the same direction.
The objective is clear:
increase economic resilience and attract investment back to the United States.
Many investors remain skeptical.
Perhaps rightly so.
But from an investment perspective, the key question is not whether these policies succeed perfectly.
The key question is:
What if they work better than expected?
Even a modest improvement could attract additional capital into the United States.
And additional capital generally translates into additional demand for US assets and, ultimately, US dollars.
Energy: The Factor Many Investors Underestimate
For decades, the United States was viewed primarily as a major energy consumer.
Today, it has become a major energy exporter.
In 2016, US liquefied natural gas (LNG) exports averaged roughly 0.5 billion cubic feet per day.
By 2025, exports had reached approximately 15 billion cubic feet per day.
Official projections suggest that exports could exceed 18 billion cubic feet per day by 2027.
In less than a decade, the United States has become the world’s largest LNG exporter.
This transformation is remarkable.
It means that America is no longer just a financial and technological superpower.
It is also becoming an energy superpower.
The Strait of Hormuz Factor
The Strait of Hormuz remains one of the most important energy chokepoints in the world.
A prolonged disruption could have significant consequences:
- Higher energy prices.
- Greater demand for alternative suppliers.
- Increased reliance on American energy exports.
If geopolitical tensions were to intensify, the United States could find itself in an even more central position within global energy markets.
And much of that trade would still be settled in US dollars.
More energy exports could therefore mean more global demand for dollars.
The Scenario Few People Discuss: A Global Dollar Shortage
This is where things become particularly interesting.
Imagine the following environment:
- Geopolitical tensions.
- Rising energy prices.
- Slower global growth.
- Increasing risk aversion.
What do investors typically do under such circumstances?
They seek safety.
And the world’s preferred safe-haven asset remains US Treasuries.
To buy Treasuries, investors need dollars.
The result is simple:
rising global demand for the US currency.
Do Treasuries Remove Dollars From the System?
Not exactly.
When an investor buys a Treasury bond, the dollars do not disappear.
They simply change hands.
The money supply itself does not shrink.
However, a growing share of global savings becomes tied up in assets perceived as safe.
This can reduce the availability of dollar liquidity elsewhere in the financial system.
In other words:
the issue is not an absolute shortage of dollars.
It is a relative shortage of dollar liquidity where it is needed most.
That distinction is critical.
Emerging Markets Could Become the Weak Link
A large share of global debt remains denominated in US dollars.
Many countries also rely on dollars to purchase energy and commodities.
What happens when the dollar strengthens?
Debt servicing becomes more expensive.
Imports become more expensive.
Demand for dollars increases.
This can create a self-reinforcing cycle:
- The dollar rises.
- Borrowers need more dollars.
- They buy dollars.
- The dollar rises further.
Economists often refer to this phenomenon as a « dollar squeeze. »
History has shown that such episodes can place considerable pressure on economies heavily dependent on dollar funding.
Could the Federal Reserve Amplify the Trend?
Another important factor deserves attention.
Inflation has proven more persistent than many investors expected.
If the Federal Reserve keeps interest rates elevated for longer, US Treasuries may remain particularly attractive relative to other developed-market bonds.
That could attract additional international capital.
And additional capital means additional demand for dollars.
Could Gold and the Dollar Rise Together?
Conventional wisdom suggests that gold and the dollar move in opposite directions.
Yet history provides several examples where both assets appreciated simultaneously.
Why?
Because both can function as safe havens during periods of uncertainty.
In a world characterized by:
- Geopolitical tensions.
- Energy insecurity.
- Slowing growth.
- Financial stress.
Investors may seek both gold and dollars at the same time.
It would not be the most common outcome.
But it would not be unprecedented either.
What If the Market Is Completely Wrong?
The prevailing narrative assumes that the dollar’s long-term path is lower.
Perhaps that view will ultimately prove correct.
But markets rarely deliver their biggest surprises through the most popular narratives.
A world characterized by:
- Energy disruptions.
- Stronger US exports.
- Heavy Treasury demand.
- Global demand for safety.
- Rising dollar funding needs.
Could produce exactly the opposite outcome.
A significantly stronger US dollar.
Final Thoughts
Most investors spend their time asking when the dollar will fall.
Few ask what could make it rise.
Yet financial history repeatedly reminds us that the most important risks are often the ones nobody is discussing.
What if the next global financial shock is not an oversupply of dollars…
But a shortage of them?
Sources
- U.S. Energy Information Administration (EIA)
- Bank for International Settlements (BIS)
- Financial Stability Board (FSB)
- U.S. Treasury
- Federal Reserve
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