Harvard economist Kenneth Rogoff warned that the U.S. dollar is trading roughly 20% above its fundamental value, a gap he says could trigger a prolonged correction. At the same time, he cautioned investors that expectations of a swift end to the Iran war are overly optimistic, describing market sentiment as naïve.

Rogoff’s assessment stems from recent currency strength that has lifted import costs and squeezed earnings for multinational firms. A correction of that magnitude would likely reverberate through equity markets, raise borrowing costs and prompt a re‑pricing of emerging‑market debt. Simultaneously, his war‑related warning suggests that any premature rally tied to conflict resolution could evaporate quickly.

Investors with dollar‑denominated exposure may need to reassess hedge ratios and consider diversifying into assets that benefit from a weaker greenback, such as commodities or foreign equities. Portfolio managers should also factor in the heightened geopolitical risk premium that Rogoff highlights, as any escalation in the Iran conflict could spike volatility across sovereign and corporate bonds. Aligning strategy with these dual pressures will protect returns as markets adjust to a more realistic valuation and geopolitical outlook today.