The cross-currency basis is signaling a sharp increase in demand for US dollar funding as Middle East tensions escalate, according to analysts at Danske Bank. The gauge, which measures the extra cost investors pay to source dollars overseas, has widened significantly across major currencies including the euro, Swiss franc, and pound.

On Tuesday, the three-month euro basis reached levels last seen four months ago, while the Swiss franc gauge hit its most negative reading of the year. Bloomberg's dollar gauge rose 1.4% since Monday, marking its largest two-day gain in nearly a year following US-Israeli strikes on Iran. This surge occurred even as US funding markets faced pressure from Treasury settlements.

The renewed dollar demand highlights the currency's safe-haven status during geopolitical crises, despite concurrent weakness in Treasuries and equities. While some analysts maintain that positive euro basis is structurally persistent, the recent price action suggests near-term resistance to that narrative. The cross-currency basis remains influenced by multiple factors including geopolitical shocks, central bank policies, and global capital flows.