Déjà vu
Markets appear to be repeating themselves once again following the latest breakdown in relations between the US and Iran. It was the combination of the threat of supply constraints and a change of guard at the Fed that allowed the Dollar to surge in recent months. However, earlier this month it appeared as if that trend was beginning to unwind or at least take a breather. Despite a nascent US Dollar correction from the start of July, history may already be repeating itself as perceived risk and implied volatility tilt higher once again.
The initial market reaction to Trump’s declaration of an end to the truce last week was surprisingly limited. At the time, we noted that reaction was so measured it may have borderlined on complacent. However, with oil prices continuing to grind higher amidst the reinstatement of a blockade in the Strait, the inflation debate has drawn back into view this week. A risk-off tone was also exported globally as a result of an AI-stock sell-off beginning in Korean equity markets yesterday, exacerbating a shift higher in the Dollar.
Completing the sense of Déjà vu, US interest rate expectations began to move higher once again. Despite relevant contracts having rallied in prior weeks, a sell-off within treasuries now implies a 50% expectation for a rate hike this month from Kevin Warsh’s Fed. That decision concludes July 29th inviting yet more volatility to the US dollar later this month. Ahead of this date, key events will include today’s CPI print in the US and Fed Chair Warsh’s testimony to Congress later this week. Markets are unlikely to need to find a reason to keep the Dollar bid given the geopolitical context so a particularly weak read and/or a dovish testimony would likely be needed to see the Dollar give back any ground.
Discussion and Analysis by Charles Porter
Related Insights
Daily Brief – Defiance
Charles Porter
Tue 12 May 2026
Defiance Yesterday’s market was defying one of two things: logic or gravity. Come to think of it, perhaps both. Take cable, GBPUSD, yesterday. The key events beyond minor data releases centred around any chatter from either side of the Iranian conflict and Starmer singing for his supper. Sing he did and tweet the President did, […]
Daily Brief – A technicality
Charles Porter
Thu 25 Jun 2026
A technicality Markets appeared to be fatigued by Trump’s Iran war before a ceasefire had even been agreed. This was evident from pricing that would have been considered complacent should the conflict have dragged on longer than it ultimately did. Now, that saga is far from over – it’s inevitable, for example, that as the […]
Daily Brief – Short-lived relief rally
Charles Porter
Tue 19 May 2026
Short-lived relief rally A tantrum in the bond market has continued to erode away at risk conditions in recent sessions. In the UK, the sell-off in gilts and corporate bonds has been particularly acute thanks to heightened political instability, the origins of which we have covered thoroughly in recent briefings. Yesterday, headlines delivered enough optimism […]
