Major currency pairs traded within familiar ranges early Tuesday as investors avoided making aggressive moves while monitoring developments in the Middle East. Attention now turns to Germany and the Eurozone’s ZEW Economic Sentiment surveys, while the US economic calendar remains light for the remainder of the day.
After Monday’s volatile session, crude oil prices eased modestly, with West Texas Intermediate (WTI) slipping around 0.5% to trade near $82 per barrel. Oil initially retreated after reports suggested mediators had proposed a 10-day ceasefire between the United States and Iran to revive diplomatic negotiations. However, hostilities continued to escalate.
US President Donald Trump warned that Iran would face consequences following the deaths of American service members, while US forces carried out strikes for a tenth consecutive day, targeting areas near Sirik, Bandar Abbas, Qeshm Island, Chabahar, and Konarak. Iran responded with attacks on US assets across the Gulf, keeping geopolitical tensions elevated.
Oil Supported by Ongoing Geopolitical Risks
Despite signs of diplomatic engagement, analysts remain cautious. Deutsche Bank noted that Iran acknowledged receiving proposals from international mediators, but escalating rhetoric from both Yemen’s Houthi movement and President Trump helped push Brent crude to settle 1.27% higher at $89.22 per barrel.
OCBC warned that any broader escalation could revive concerns over a prolonged disruption to global oil supplies, potentially lifting crude prices back above $100 per barrel. Such a scenario could increase market volatility, weaken demand for carry trades, and reinforce demand for the US Dollar as investors seek safe-haven assets.
Fed Faces Fresh Inflation Concerns
The US Dollar Index (DXY) extended Monday’s gains by more than 0.2%, although it traded sideways just below the 101.00 level during Tuesday’s European session.
According to Commerzbank’s Volkmar Baur, persistently high energy prices could make it increasingly difficult for the Federal Reserve to avoid raising interest rates. While policymakers typically focus on core inflation, sustained increases in oil prices risk feeding into broader inflation through second-round effects, complicating the Fed’s policy outlook.
Sterling Softens Despite Stable Labor Market
UK labor market data showed the ILO unemployment rate remained unchanged at 4.9% in the three months to May. Meanwhile, average earnings excluding bonuses increased 4.3% year-over-year, below expectations of 4.5%.
The softer wage growth limited Sterling’s recovery, although GBP/USD edged slightly higher to around 1.3450 after three consecutive daily declines. Investors now await Wednesday’s UK inflation report.
New Zealand Dollar Outperforms After Inflation Surprise
New Zealand’s second-quarter inflation accelerated more than expected, with the annual Consumer Price Index (CPI) rising to 4.1%, up from 3.1% in the previous quarter and exceeding forecasts of 4.0%.
The stronger inflation reading boosted expectations that the Reserve Bank of New Zealand could maintain a restrictive policy stance, lifting NZD/USD above 0.5850, its strongest level since early June.
Euro, Canadian Dollar and Yen Hold Steady
EUR/USD traded quietly around 1.1420 after posting modest losses on Monday.
USD/CAD remained above 1.4050 despite Canadian inflation slowing to 2.8% in June from 3.2% previously. The Canadian Dollar also faced pressure after the White House announced that President Trump would impose 50% tariffs on most Canadian imports, citing what Washington described as discriminatory treatment of US automobiles, alcohol, and dairy products.
Meanwhile, USD/JPY held near 162.50. Japanese Prime Minister Sanae Takaichi stated that the government would continue balancing economic support with fiscal sustainability while working to preserve market confidence.
Oil Still Matters: Ranking the World’s Top 10 Producers
Oil has been pronounced obsolete countless times, yet global consumption still exceeds 100 million barrels per day.
Beyond fueling airplanes, trucks, and cargo ships, petroleum serves as a key ingredient in plastics, fertilizers, chemicals, pharmaceuticals, and thousands of everyday products that consumers rarely connect to crude oil.
According to OPEC projections, worldwide oil demand is expected to rise to 113.3 million barrels per day by 2030 and 124.1 million by 2050, with non-OECD nations driving most of the increase. Despite the global push toward alternative energy, oil is set to remain a cornerstone of the world economy for decades.
Below is a ranking of the world’s 10 largest oil-producing nations based on the latest data from the U.S. Energy Information Administration (EIA), reflecting 2025 production levels.
10. Kuwait | 2.6 Million Barrels Per Day
Although Kuwait ranks last on this list, it remains one of the richest countries in terms of oil reserves. The nation holds an estimated 101.5 billion barrels of crude, enough to sustain current production levels for roughly 100 years, while also benefiting from some of the lowest extraction costs globally.
Production, however, has fallen below its traditional pace of around 3 million barrels per day. Through the state-owned Kuwait Petroleum Corporation, the oil sector remains the backbone of the economy, generating approximately 90% of government revenues and export earnings.
Kuwait highlights an important reality: possessing vast reserves is not the same as maximizing their economic value.
9. Brazil | 3.8 Million Barrels Per Day
Brazil has emerged as one of the most compelling offshore oil success stories in recent decades. Its massive pre-salt reserves, buried beneath deep Atlantic waters and thick salt formations, require advanced technology and significant capital investment to develop.
Those investments are yielding results. Petrobras recently reported record output of 1.1 million barrels per day from the Búzios field alone, which now accounts for roughly one-third of the company’s Brazilian production.
As production expands, Brazil has become a major crude exporter and continues to offer investors exposure to highly productive fields with substantial growth potential.
8. United Arab Emirates | 3.8 Million Barrels Per Day
The UAE matched Brazil’s output at roughly 3.8 million barrels per day in 2025 but entered 2026 with a more aggressive production strategy.
Following its departure from OPEC in May, the country boosted output to a record 4.1 million barrels per day by June, signaling a desire to prioritize national production goals over cartel quotas.
Serving key Asian markets such as China, India, and Japan, the UAE has also invested heavily in refining, storage, port infrastructure, and pipeline networks. In periods of supply disruption, especially around the Strait of Hormuz, that logistical flexibility becomes a major strategic advantage.
7. Iran | 4.1 Million Barrels Per Day
Iran’s energy sector has long been shaped by geopolitics. Despite holding the world’s fourth-largest proven oil reserves and second-largest natural gas reserves, sanctions, conflict, and limited foreign investment have prevented the country from reaching its full production potential.
Output once exceeded 6 million barrels per day during the 1970s. Today, much of Iran’s oil trade relies on Chinese demand and a complex network of intermediaries designed to navigate sanctions.
Iran remains a critical player because any disruption to its exports can have an outsized effect on oil prices, particularly when tensions threaten traffic through the Strait of Hormuz, one of the world’s most important energy chokepoints.
6. China | 4.3 Million Barrels Per Day
While China is widely recognized as the world’s largest crude importer, it is also a significant producer.
Driven by energy-security concerns, Beijing has encouraged state-owned producers to boost domestic output. As a result, production climbed from approximately 3.8 million barrels per day in 2020 to a record 4.3 million in 2025.
PetroChina remains the country’s largest producer, while offshore specialist CNOOC has delivered notable growth. Increased exploration spending and new discoveries have also expanded reserve estimates.
Even so, China still imported roughly 11.55 million barrels per day in 2025. Aging fields and rising development costs suggest domestic production may be approaching practical limits, leaving imports as a crucial component of the nation’s energy strategy.
5. Iraq | 4.4 Million Barrels Per Day
Iraq possesses around 145 billion barrels of proven reserves, ranking among the largest resource holders globally.
Its oil fields are both extensive and relatively inexpensive to operate, giving the country the potential to produce far more crude than current levels suggest.
The challenge lies in infrastructure and export reliability. Roughly 93% of Iraqi crude exports pass through terminals near Basra on the Persian Gulf. Any disruption in the Strait of Hormuz can quickly create bottlenecks, forcing storage facilities to fill and production to slow.
Despite enormous geological advantages, logistical constraints and political challenges continue to limit Iraq’s full potential.
4. Canada | 5 Million Barrels Per Day
Canada stands as the only non-U.S. nation in the top five located entirely within North America, a valuable advantage amid growing geopolitical uncertainty.
Most Canadian production comes from Alberta’s oil sands, where heavy bitumen is either mined or extracted using steam-assisted recovery techniques.
Although oil sands projects require substantial upfront investment, they offer exceptionally long production lives and relatively low decline rates compared with shale wells.
Canada set another production record in 2025, with crude and equivalent output averaging 5.35 million barrels per day under broader regulatory measurements. Alberta alone contributed nearly 84% of national production.
3. Saudi Arabia | 9.6 Million Barrels Per Day
Saudi Arabia remains the most influential nation in the global oil market despite no longer holding the top production spot.
Output rose to approximately 9.6 million barrels per day in 2025 as OPEC+ gradually relaxed voluntary supply cuts.
Saudi Aramco oversees more than 260 billion barrels of proven reserves and operates some of the largest and lowest-cost oil fields ever discovered. More importantly, Saudi Arabia maintains significant spare production capacity that can be activated relatively quickly.
While most producers pump at maximum capacity, Saudi Arabia often has the ability to increase or decrease output strategically, giving it extraordinary influence over global oil prices.
2. Russia | 9.9 Million Barrels Per Day
Despite sanctions, production restraints, and the ongoing conflict in Ukraine, Russia remained the world’s second-largest oil producer in 2025 with roughly 9.9 million barrels per day.
The country has successfully redirected much of its crude exports toward Asia, with China and India becoming its dominant buyers.
However, the long-term outlook is more uncertain. Mature fields require increasing investment, while sanctions continue to limit access to advanced Western technology and financing.
Russia remains an energy giant, but sustaining current production levels could become increasingly challenging over time.
1. United States | 13.6 Million Barrels Per Day
The United States did more than lead the rankings in 2025—it achieved the highest crude oil production ever recorded by any country.
U.S. crude and condensate output averaged a record 13.6 million barrels per day, roughly 40% higher than production from either Russia or Saudi Arabia. Monthly production reached an all-time high of 13.93 million barrels per day in April.
At the center of this achievement is the Permian Basin in Texas and New Mexico, which produced approximately 6.6 million barrels per day and accounted for nearly half of total U.S. output.
Technological advances in horizontal drilling and hydraulic fracturing, combined with private mineral ownership, deep capital markets, and a competitive oil-services industry, transformed the United States into a global energy powerhouse.
Today, the country is also a major exporter of crude oil, gasoline, diesel, and refined petroleum products, strengthening both its trade position and domestic economy.
Why Oil Still Matters
Across much of the world, oil production is dominated by governments and state-owned enterprises. In contrast, private investment and publicly traded companies play a far greater role in North America.
Understanding where global oil supplies originate—and the economics behind bringing those barrels to market—can help investors better navigate future commodity cycles. Despite rapid growth in renewable energy, oil remains one of the most important resources underpinning modern civilization and the global economy.
The global oil market is losing many of its key shock absorbers as inventories remain tight, shipments through the Strait of Hormuz face ongoing disruptions, and spare supply continues to shrink, increasing the likelihood of stronger oil prices.
One factor that has kept prices from climbing further is China’s sharp decline in crude oil imports. However, analysts believe that support may soon disappear, with the world’s largest oil importer expected to return to the market after drawing down its existing stockpiles.
Should disruptions in the Strait of Hormuz continue while Chinese buying accelerates, market analysts warn that global oil supplies could tighten considerably. The resulting imbalance between supply and demand may place the greatest upward pressure on crude prices in the latter part of the year.
The oil market could soon lose the key supply and demand buffers that have prevented crude prices from surging despite the massive disruption to shipments through the Strait of Hormuz.
A temporary U.S.-Iran memorandum of understanding had allowed Middle Eastern producers to accelerate exports of crude that had accumulated in Gulf storage over the previous four months. That opportunity has now effectively ended as hostilities resumed and the ceasefire collapsed.
At the same time, crude and refined fuel inventories across major consuming regions, including the United States, have fallen to critically low levels. Much of the oil released through the largest coordinated strategic stock drawdown in history has already reached refiners, leaving few reserves available to cushion further supply shocks.
Another important stabilizing factor may also be fading. China, whose reduced crude imports have helped moderate global demand in recent months, is expected to return to the market soon. If that happens, one of the largest forces restraining oil prices during the March-to-June period could disappear.
China’s Demand May Be Reawakening
China cut crude imports to their lowest level in a decade during June, extending three months of unusually weak buying as elevated prices and constrained Middle Eastern supplies discouraged purchases. Compared with its 2025 average, imports are estimated to have declined by roughly 4.4 million barrels per day.
Official customs figures showed June crude imports totaled 29.27 million metric tons, or about 7.12 million barrels per day—down 41.3% from the same month a year earlier and marking the weakest monthly import level since October 2016.
The country’s large commercial and strategic reserves, accumulated before the conflict with Iran intensified, allowed Beijing to sharply reduce imports while still meeting domestic demand. Those stockpiles have acted as a major buffer for the global market, helping prevent prices from soaring despite the disruption of more than 10 million barrels per day of oil flows through the Strait of Hormuz.
As the world’s largest crude importer, China entered the supply crisis better prepared than any other major consumer. Analysts estimate it built reserves of between 1.2 billion and 1.3 billion barrels before the conflict began, although the true size of those inventories remains uncertain because official data are limited.
Recent estimates suggest China began drawing on those reserves in May and continued doing so through June. According to the International Energy Agency (IEA), inventories declined by roughly 41 million barrels last month.
While Goldman Sachs believes China still holds ample reserves and faces no immediate pressure to increase purchases, analysts expect the turning point may be approaching. Lower official selling prices from Gulf producers for July and August could encourage Chinese refiners to step up imports in the coming months.
Since the Middle East conflict escalated in February, China’s restrained buying has effectively acted as the global oil market’s swing demand factor. If imports recover, that important demand buffer could disappear.
Shrinking Inventories Raise Risks
A rebound in Chinese demand could coincide with continuing uncertainty surrounding the Strait of Hormuz, where shipping activity remains well below the pace seen during the brief period following the U.S.-Iran agreement.
Any renewed disruption to tanker traffic would further delay the recovery of Middle Eastern exports and tighten global supplies of both crude oil and refined fuels.
According to Energy Aspects founder Amrita Sen, slower vessel movements through the Strait, combined with renewed U.S. restrictions on Iranian oil exports and rapidly declining inventories, are laying the groundwork for higher oil prices if current conditions persist.
Sen estimates that global oil inventories have fallen by roughly 600–700 million barrels since the crisis began. She warned that if the current situation extends into the end of this month or early next month, the market may face its greatest pressure later in the third quarter or early in the fourth quarter.
Speaking separately to the Financial Times, Sen said that nearly all excess commercial inventories have now been exhausted, leaving only government-held strategic reserves as a meaningful emergency backstop. As a result, confidence that oil flows through the Strait of Hormuz will remain uninterrupted is increasingly being tested.
GBP/USD slips toward 1.3470 during Friday’s Asian session.
The US carried out a sixth consecutive day of strikes against Iran, fueling geopolitical tensions.
Markets continue to increase expectations for additional Bank of England rate hikes this year.
The GBP/USD pair remains under modest pressure, slipping to around 1.3470 during Friday’s Asian session as heightened geopolitical tensions in the Middle East dampen investor risk appetite and lend support to the US Dollar. Market participants are also awaiting the preliminary University of Michigan Consumer Sentiment Index for July, due later in the day.
Risk aversion intensified after the United States launched a sixth consecutive day of military strikes against Iran. Authorities in Bandar Abbas reported damage to civilian infrastructure, including electricity facilities and a railway station, adding to concerns over a widening regional conflict.
The US Central Command (CENTCOM) stated that the latest operations were aimed at further weakening Iran’s military capabilities and confirmed that naval forces had boarded a vessel as part of efforts to enforce the blockade around the strategic waterway. Earlier this week, President Donald Trump warned that Iranian bridges and power infrastructure could become targets unless Tehran returned to negotiations. The escalating conflict has increased demand for traditional safe-haven assets, providing additional support for the US Dollar against Sterling.
Meanwhile, recent US inflation figures have offered mixed signals. Consumer price inflation eased in June, while producer prices also declined, reinforcing expectations that inflationary pressures are moderating. Even so, traders continue to assign roughly a 55% probability to a Federal Reserve interest rate hike in September, according to the CME FedWatch Tool.
In the UK, Bank of England Governor Andrew Bailey acknowledged concerns over the renewed hostilities between the US and Iran but said the conflict has not materially altered the country’s inflation outlook. Markets continue to expect the BoE to raise interest rates at its November meeting, with another increase largely priced in by April 2027, according to Reuters.
WTI edges higher during the Asian session, although buying interest remains limited. Escalating tensions between the US and Iran continue to underpin geopolitical risk premiums, while fears of supply disruptions across key shipping routes lend further support to crude prices.
West Texas Intermediate (WTI), the US benchmark for crude oil, trades modestly higher during Friday’s Asian session but continues to move within a well-established multi-day trading range. The commodity is hovering near $79.35, up roughly 0.5% on the day and close to Tuesday’s one-month peak, leaving it on course for a second consecutive weekly gain as investors remain focused on the possibility of further escalation between the United States and Iran.
Market sentiment remains supported after the US military conducted a sixth straight night of airstrikes against Iran on Thursday, including a strike on an empty oil tanker bound for Kharg Island as part of its renewed naval blockade of Iranian ports. In response, Iran launched attacks on US military positions across the region, intensifying concerns that the conflict could evolve into a broader confrontation. These developments have kept geopolitical risk premiums elevated and continue to provide underlying support for crude prices.
Additional concerns emerged after authorities in Bandar Abbas reported damage to civilian infrastructure, including electricity facilities and a railway station. Iran’s Islamic Revolutionary Guard Corps has also warned of expanding military operations by targeting more regional energy transport routes. Adding to supply concerns, Reuters reported that Tehran has instructed Yemen’s Houthi movement to prepare for the possible closure of the Red Sea oil corridor, creating another potential threat to global energy flows.
At the same time, declining shipping activity through the Strait of Hormuz has reinforced fears of tighter oil supplies, strengthening the case for further upside in crude prices. Even so, traders may prefer to wait for a decisive breakout above the current consolidation range before committing to fresh bullish positions. Nevertheless, the broader fundamental backdrop continues to favor buyers, suggesting that any near-term pullback is likely to attract renewed demand and remain relatively limited.
Silver remains under pressure as escalating US-Iran tensions in the Strait of Hormuz drive oil prices higher, raising concerns that the Federal Reserve may keep interest rates elevated for longer. Softer-than-expected June CPI and PPI data have helped ease near-term rate-hike concerns. Meanwhile, markets have reduced the probability of a September Fed rate increase to 44%, although the impact of recent military developments has yet to be fully reflected in asset prices.
Silver (XAG/USD) extends its decline for a second consecutive session, trading near $57.00 per troy ounce during Thursday’s Asian session. The precious metal remains under pressure as escalating tensions between the United States and Iran drive oil prices higher, raising inflation risks and reinforcing expectations that the Federal Reserve could maintain elevated interest rates for longer.
According to reports, the US Central Command (CENTCOM) launched additional operations aimed at keeping the Strait of Hormuz open, a critical route for global energy supplies. In a significant escalation, US forces reportedly targeted an oil tanker in the strategic waterway, heightening concerns over further disruptions to oil markets. Meanwhile, President Donald Trump declined to provide a timeline for potential future actions against Iranian infrastructure, adding to geopolitical uncertainty.
Despite these developments, investors are also weighing softer US inflation data. Consumer inflation eased to 3.5% year-over-year in June from 4.2% in May, coming in below the consensus forecast of 3.8%. The weaker CPI reading initially reduced expectations of an imminent Fed rate increase.
Producer inflation data reinforced the disinflationary trend. The annual PPI rate slowed to 5.5% in June from 6.0% previously, missing expectations of 6.2%, while monthly PPI fell 0.3% after a 0.6% rise in May, outperforming forecasts for a flat reading.
As a result, market expectations for a September Fed rate hike eased, with implied odds declining to roughly 44% from 50% a day earlier. However, analysts note that June inflation figures do not yet reflect the economic consequences of the renewed US-Iran conflict, leaving markets cautious about the potential inflationary effects of the latest military escalation.
For the first time in the current market cycle, a silver producer has disclosed concrete figures showing a forced reduction in output, with the decline stemming from China’s mine-safety crackdown rather than changes in silver prices.
Silver is currently trading around $58 an ounce after falling below its early-July low. The metal has dropped about 18% from its year-end 2025 close near $71 and remains roughly 52% below the record high of $121.62 reached on January 29. Even so, silver is still more than 50% higher than it was a year ago. With gold hovering near $4,000 an ounce, the gold-to-silver ratio stands at approximately 69. The recent two-month pullback has largely been driven by macroeconomic forces, including a stronger US dollar and the Federal Reserve’s hawkish stance, while renewed US-Iran tensions have fueled oil prices and inflation concerns, rather than any major shift in silver market fundamentals.
Beneath the recent price weakness, however, the long-term supply outlook remains largely intact. According to Metals Focus and the Silver Institute, the global silver market is expected to record its sixth consecutive annual supply deficit in 2026, with demand projected to exceed production by 46.3 million ounces. A key pillar of the bullish outlook has been the limited ability of silver supply to respond to higher prices. Around three-quarters of global silver production comes as a byproduct of mining for copper, lead, zinc, and gold, making it difficult to significantly increase output simply because silver prices rise. This week provided one of the clearest real-world examples of that constraint, as China’s safety-related mining restrictions forced measurable production cuts despite elevated silver prices.
Silvercorp’s Production Cuts
On June 29, Canadian-listed Silvercorp Metals announced that a tightening mine-safety campaign in China would significantly reduce its production during the July-to-September quarter. Output from its Ying mining district is expected to decline by 40% to 50%, while production at the GC mine is projected to fall by around 50%. Overall, the company estimates a quarterly production decline of 10% to 15%. Based on Silvercorp’s latest annual production of approximately 6.3 million ounces from Ying and 0.5 million ounces from GC, the reductions could remove an estimated 0.9 million to 1.1 million ounces of silver from supply during the affected period.
The significance lies less in the company itself than in the cause of the disruption. The production cuts were not driven by weaker prices or operational decisions but by stricter government safety regulations. Following a fatal coal mine accident in Shanxi Province in late May, Chinese authorities expanded the country’s long-established “Six Major Safety Systems” requirements to cover all underground non-coal mines. The new rules are supported by a nationwide real-time monitoring network overseeing more than one million safety sensors.
For Silvercorp, meeting the updated standards will require roughly $5.5 million in certified safety-system installations over about 50 days, along with an additional $6 million for facility and equipment upgrades. The nearly $11.5 million investment is aimed solely at maintaining regulatory compliance and keeping mines operational, rather than increasing production capacity, effectively raising the cost of every ounce of silver the company continues to produce.
While Silvercorp is only one mining company, the regulations affecting its operations apply to every underground metal mine in China. As a result, the same safety enforcement that forced Silvercorp to scale back production could eventually reduce China’s overall silver output by several million additional ounces, although no confirmed figures beyond Silvercorp’s estimates are available yet. Given China’s position as one of the world’s largest silver producers and an even more significant refining hub, the broader regulatory trend carries greater importance than the impact on any single miner.
What It Means for Silver Investors
The immediate impact should be viewed in perspective. Silvercorp’s estimated production loss of 0.9 million to 1.1 million ounces is relatively modest compared with the roughly 846.6 million ounces of silver mined globally in 2025, representing only slightly more than one-tenth of one percent of annual supply. On its own, the reduction is far too small to meaningfully alter the global supply-demand balance. As such, portraying it as the catalyst for an immediate supply shortage would overstate its significance.
What makes this development significant is not the scale of the production cut but the underlying mechanism. One of the strongest arguments supporting silver’s long-term outlook is that mine supply cannot quickly respond to higher prices. That theory faced a real-world test as silver surged to record highs in early 2026. Instead of increasing, however, production moved in the opposite direction. Supply contracted for reasons unrelated to market prices, as regulatory safety measures forced mines to reduce output. In this case, even substantially higher silver prices could neither prevent the shutdowns nor restore the lost production. If supply continues to tighten under regulatory pressure while remaining largely unresponsive to stronger prices, the industry’s ability to offset the market’s projected sixth consecutive annual deficit becomes even more limited.
The broader significance, therefore, lies in what this episode demonstrates rather than in the number of ounces affected. In Issue #19, I highlighted the growing divergence between a replenished silver inventory in New York and persistently elevated physical premiums in Shanghai, suggesting that Western markets appear well supplied while buyers in Asia continue paying a premium for physical metal. Silvercorp’s production cut adds to that narrative, reinforcing the view that underlying physical tightness may be greater than paper prices imply. While this development does not point to any specific price target, it strengthens the long-term investment case for silver by providing tangible evidence that global mine supply remains structurally constrained and cannot be expanded quickly, even during periods of elevated prices.
Gold prices fell to around $3,995 during Tuesday’s early Asian trading session.
The decline followed President Trump’s decision to reinstate the Iran port blockade and his pledge to impose a 20% levy on cargo transiting the Strait of Hormuz.
Investors are now awaiting the release of the US June Consumer Price Index (CPI), which is expected to be the key market catalyst later on Tuesday.
Gold prices (XAU/USD) continued to trade under pressure, hovering around $3,995 during Tuesday’s early Asian session. The precious metal remained on the defensive as escalating tensions between the United States and Iran reinforced concerns over persistent inflation. Investors are now focused on the release of the US June Consumer Price Index (CPI) and testimony from Federal Reserve Chair Kevin Warsh, both scheduled for later on Tuesday.
According to Bloomberg, US President Donald Trump reinstated the blockade on Iranian vessels passing through the Strait of Hormuz and announced a 20% fee on all other cargo transiting the strategic waterway. Trump also pledged to intensify military action against Iran, stating that the US would continue launching heavy strikes over the coming days.
The renewed blockade raises the risk of retaliation from Tehran, potentially increasing attacks on commercial shipping in the Strait of Hormuz. Such disruptions could fuel higher energy prices, adding to inflationary pressures and reinforcing expectations that the Federal Reserve will keep interest rates elevated for longer. Although gold typically benefits from heightened geopolitical uncertainty, its appeal is often limited in a high-interest-rate environment because it does not generate yield.
Market participants are also awaiting the latest US inflation figures for further policy clues. Economists expect the headline CPI to decline 0.1% month-over-month in June, while core CPI is forecast to increase 0.3% over the same period. If inflation comes in below expectations, the US Dollar could weaken, providing short-term support for dollar-denominated gold prices.
WTI is trading within a narrow range as investors remain cautious amid conflicting signals from the US and Iran.
Ongoing exchanges of fire between the US and Iran continue to fuel geopolitical concerns, providing underlying support for crude oil prices.
However, market anxiety has eased after US President Donald Trump stated that Iran is willing to negotiate a deal, limiting further gains in WTI.
West Texas Intermediate (WTI), the US benchmark for crude oil, remains stable during Friday’s Asian trading session after recovering from the previous day’s decline. Mixed signals from Washington and Tehran have encouraged traders to stay on the sidelines, with prices hovering near $71.75 and showing little change on the day as markets await fresh developments in the Middle East.
Geopolitical concerns returned to the forefront this week after the US launched a new round of military strikes against Iran in response to attacks on commercial vessels transiting the Strait of Hormuz. Tehran retaliated by targeting regional US allies and striking American military facilities in Bahrain and Kuwait. Adding to the tensions, US President Donald Trump announced on Wednesday that the ceasefire was effectively over, helping drive crude prices higher earlier in the week.
However, sentiment improved on Thursday after Trump stated that Iran had reached out seeking negotiations to prevent further escalation. A White House official also reaffirmed Washington’s commitment to the existing memorandum of understanding with Tehran. These developments, combined with OPEC+’s decision to raise production targets once again, may limit upside momentum in oil prices and prompt traders to remain cautious about initiating new bullish positions.
Meanwhile, the latest report from the US Energy Information Administration (EIA) showed an unexpected increase in crude inventories for the week ending July 3, marking the first stockpile build in eleven weeks. Commercial crude inventories climbed by 2.998 million barrels, well above market expectations. The larger-than-forecast increase could continue to weigh on prices, although WTI remains on track to post a modest weekly gain and potentially end a four-week losing streak.
Gold prices edge higher toward the $4,120 mark during Friday’s early Asian trading session. The precious metal finds support after US officials indicated that Washington remains committed to its memorandum of understanding (MOU) with Iran, despite President Trump’s statement that the agreement is “over.” However, expectations that the Federal Reserve will maintain a hawkish policy stance could limit further gains in Gold.
Gold prices rebounded to around $4,120 during Friday’s early Asian session as investors assessed the risk of renewed conflict in the Middle East. Demand for the safe-haven metal strengthened amid persistent geopolitical uncertainty surrounding the US-Iran situation.
The White House indicated that it remains committed to the memorandum of understanding (MOU) with Iran, despite President Donald Trump’s recent statement that the framework agreement aimed at ending the conflict was “over” following Iranian attacks on vessels in the Strait of Hormuz and neighboring countries.
Nevertheless, tensions remain elevated. Trump warned that military action would intensify if Iran launched further attacks on shipping in the strait. On Thursday, Iran reportedly targeted US military bases in Bahrain, Kuwait, and Qatar, while Jordan intercepted eight missiles fired by Tehran, according to Axios.
Rising hostilities between the US and Iran have fueled concerns over potential disruptions to global oil supplies. Higher crude oil prices could increase inflationary pressures, potentially prompting the Federal Reserve to keep interest rates elevated for a longer period, which may limit Gold’s upside.
Meanwhile, minutes from the Fed’s June policy meeting—the first chaired by Kevin Warsh—revealed significant disagreement among policymakers regarding the future path of interest rates. While many officials suggested that the federal funds rate could end the year within or slightly below its current range, others argued that rates may need to remain above current levels, reflecting continued uncertainty over the inflation outlook.
The US Dollar Index remains under pressure after the FOMC Minutes failed to deliver a more hawkish signal. Still, expectations for a Fed rate hike later this year and renewed tensions between the US and Iran are helping to limit downside momentum.
The US Dollar Index (DXY), which measures the Greenback against a basket of major currencies, remains under mild selling pressure for a second consecutive day. However, the decline has been limited, with the index trading within Wednesday’s range during Thursday’s Asian session and hovering just below the 101.00 level, down roughly 0.1% on the day.
Demand for the US Dollar has softened following the release of the latest FOMC Minutes, which failed to deliver a significantly more hawkish policy signal. The minutes from the June 16–17 meeting showed policymakers remained divided on the future path of interest rates, with many officials suggesting the federal funds rate could finish the year at or slightly below its current level.
Despite this, Federal Reserve officials continued to highlight persistent upside inflation risks, indicating that additional policy tightening may still be necessary to bring inflation back toward the 2% target. Markets continue to price in approximately a 70% probability of a 25-basis-point rate increase in September. At the same time, renewed geopolitical tensions between the US and Iran have provided support for the Greenback by reinforcing safe-haven demand and fueling expectations of higher inflation.
The latest escalation in the Middle East followed fresh US military strikes against Iran in response to attacks on commercial shipping in the Strait of Hormuz. Tehran retaliated with ongoing attacks targeting US military facilities and assets in Bahrain and Kuwait. Further adding to uncertainty, US President Donald Trump stated on Wednesday that the memorandum of understanding intended to ease regional tensions had effectively collapsed. Against this backdrop, traders are reluctant to initiate aggressive bearish positions on the Dollar ahead of the release of US Weekly Jobless Claims data, which could offer fresh direction for the market.
WTI crude extends its advance as renewed geopolitical tensions in the Strait of Hormuz raise concerns over potential supply disruptions. Iran reportedly launched at least two missiles at commercial vessels passing through the key maritime chokepoint on Monday, bolstering risk premiums in the oil market. However, gains may be tempered after Saudi Aramco reduced the price of its Arab Light crude for Asian customers by $11, bringing it to a $1.50 discount to the regional benchmark.
West Texas Intermediate (WTI) crude oil edged higher to around $69.20 per barrel during Tuesday’s Asian session, recovering part of the previous day’s decline as renewed tensions in the Strait of Hormuz provided short-term support to prices.
Market sentiment improved after a Bloomberg report, citing a US official, indicated that Iran launched at least two missiles at commercial vessels navigating the crucial shipping corridor late Monday. Although two ships suffered significant damage, no fatalities were reported. Meanwhile, the UK Maritime Trade Operations (UKMTO) said a southbound tanker was hit by an unidentified projectile on its port side, triggering a fire onboard.
However, the upside in crude prices remained limited, with WTI hovering near a four-month low amid growing signs of ample global supply. Easing some immediate concerns over disruptions, maritime traffic through the Strait of Hormuz has begun to normalize. Data showed that at least eight Japan-linked vessels, including five supertankers capable of carrying roughly two million barrels of crude each, successfully transited the waterway via routes close to Iran.
Further weighing on the market, Saudi Aramco slashed the official selling price of its benchmark Arab Light crude for Asian customers by $11 per barrel, leaving it at a $1.50 discount to the regional benchmark. The rare and aggressive price cut—previously seen only during the oil market downturns of 2015 and 2020—underscores weakening demand conditions. The move came shortly after OPEC+ agreed over the weekend to increase production quotas for next month, reinforcing expectations of a more oversupplied global oil market and limiting the scope for sustained gains in WTI.
Energy – Brent Forward Curve Signals Improving Supply Conditions
The oil market is heading for a fourth straight weekly decline as traffic through the Strait of Hormuz continues to recover. Rising crude flows are placing increasing pressure on the front end of the ICE Brent forward curve, which has been shifting deeper into contango—a market structure often associated with ample near-term supply. The return of disrupted barrels, combined with ongoing releases from strategic petroleum reserves, has improved supply availability. However, lower outright prices and a contango market structure may begin attracting additional buying interest.
In the ARA hub, data from Insight Global showed total refined product inventories declined by 22,000 tonnes week-on-week to 4.53 million tonnes. The decrease was mainly driven by lighter products, with gasoline and naphtha stocks dropping by 75,000 tonnes and 26,000 tonnes, respectively. Meanwhile, middle distillates posted gains, as jet fuel inventories increased by 66,000 tonnes and gasoil stocks rose by 16,000 tonnes.
Singapore’s refined product inventories also moved lower, falling by 1.73 million barrels to 40.45 million barrels. Although stock levels remain below the five-year average of 45.32 million barrels, they have recovered significantly from early-June lows of 34.41 million barrels. Declines were recorded across all major categories, with light products, middle distillates, and residual fuels decreasing by 665,000 barrels, 420,000 barrels, and 648,000 barrels, respectively.
In the natural gas market, front-month Henry Hub futures came under pressure after U.S. storage data showed a larger-than-expected build. Gas inventories increased by 87 billion cubic feet last week, surpassing both market expectations of 84 bcf and the five-year average increase of 64 bcf. Nevertheless, persistent heatwaves across parts of the United States are expected to support gas demand for electricity generation as cooling requirements remain elevated.
Metals – Aluminium Retreats as Supply Concerns Ease
LME aluminium prices weakened again, with three-month contracts slipping toward $3,000 per tonne as traders continued to remove the geopolitical risk premium that had accumulated during the Middle East conflict.
Market sentiment was dampened by an update from Emirates Global Aluminium (EGA), which announced that approximately 7% of production pots at its Al Taweelah smelter have been restarted. The progress highlights a gradual recovery in output following missile and drone attacks that disrupted operations earlier this year.
The development strengthened expectations that supply interruptions in the Gulf region will be temporary. Earlier fears of production losses and shipping disruptions through the Strait of Hormuz had fueled a strong rally in aluminium prices. However, improving production levels and easing geopolitical tensions have significantly enhanced the supply outlook.
Although a large share of Al Taweelah’s capacity remains offline and a complete recovery is still some distance away, the latest progress indicates that lost supply is steadily returning to the market, helping to alleviate concerns about aluminium availability.
Precious Metals – Gold Advances on Softer U.S. Economic Data
Gold posted strong gains after weaker-than-expected U.S. employment figures reduced concerns that the Federal Reserve might need to tighten monetary policy further this year. The softer labor market data pushed both Treasury yields and the U.S. dollar lower, increasing the attractiveness of non-yielding assets such as gold.
The rally extended gains already supported by less hawkish remarks from Fed Chair Kevin Warsh earlier in the week. Investors are increasingly reassessing the trajectory of U.S. monetary policy, with upcoming economic releases likely to play a crucial role in determining whether labor market weakness persists. Continued moderation in economic activity could lessen pressure on the Fed to raise rates, providing further support for gold prices.
Central banks also remained significant buyers of gold in May, purchasing a net 41 tonnes according to the World Gold Council. Poland led acquisitions with 18 tonnes, bringing its purchases for the year to 64 tonnes. China continued its long-running accumulation strategy, adding 10 tonnes and extending its buying streak to 20 consecutive months. Uzbekistan and Kazakhstan increased their reserves by 9 tonnes and 7 tonnes, respectively.
In contrast, Russia was a net seller, reducing its gold holdings by 6 tonnes during May and bringing year-to-date sales to 34 tonnes. Turkey also trimmed reserves by 3 tonnes, resulting in total sales of 81 tonnes so far this year. Despite these sales, robust demand from central banks continues to provide a strong underlying foundation for the gold market.
WTI crude continues to trade lower below the $68.00 level as investors remain optimistic that diplomatic negotiations will bring an end to the conflict between the United States and Iran. Reports from Qatari mediators indicate that talks held in Doha this week have made meaningful progress, easing concerns over potential supply disruptions. Adding to the bearish pressure, Reuters reported that OPEC+ is considering raising output by 188,000 barrels per day in August, further improving the global supply outlook.
Crude oil prices continued to move lower on Thursday as signs of progress in diplomatic efforts between the United States and Iran reduced concerns about potential supply disruptions. West Texas Intermediate (WTI), the US benchmark crude grade, slipped below the $68.00 mark and was trading around $67.80 at the time of writing, its lowest level since the conflict began in February.
According to Qatar’s Foreign Ministry, indirect negotiations held in Doha earlier this week produced encouraging results. Officials stated that both sides made headway on matters related to the memorandum that ended hostilities in June and were building on discussions initiated during a recent summit in Switzerland.
Uncertainty Remains Despite Diplomatic Progress
While reports suggest the talks are moving in a constructive direction, key details remain limited. US President Donald Trump said the negotiations yielded progress regarding potential restrictions on Iran’s nuclear program, adding that efforts toward denuclearization were advancing positively. However, US Vice President JD Vance indicated that nuclear-related issues would likely be addressed in future discussions.
Meanwhile, Iran’s Deputy Foreign Minister Kazem Gharibabadi stated that both parties had agreed to establish a communication mechanism to monitor and report any violations of the existing memorandum of understanding.
A major source of uncertainty remains the Strait of Hormuz. Although shipping activity through the vital waterway has increased since the ceasefire, traffic levels remain well below pre-conflict norms, suggesting that full normalization has yet to occur.
On the supply side, oil prices also came under pressure after reports that the OPEC+ alliance is considering raising production quotas by 188,000 barrels per day in August. Expectations of additional supply entering the market have further weighed on crude prices, reinforcing the bearish sentiment driven by easing geopolitical risks.
WTI crude oil prices slid to around $69.60 during early Asian trading on Monday as optimism grew over a potential diplomatic breakthrough between the US and Iran. Market sentiment improved after reports indicated that both countries were moving back toward negotiations aimed at ending the conflict, with Axios reporting that US and Iranian officials are scheduled to meet in Qatar on Tuesday.
WTI crude oil retreated to around $69.60 during early Asian trading on Monday as easing geopolitical tensions weighed on prices. The decline followed reports that the United States and Iran had agreed to suspend military strikes and resume negotiations, with officials from both countries expected to meet in Qatar on Tuesday.
According to Axios, citing unnamed US officials, Washington and Tehran have agreed to halt more than three days of retaliatory attacks in and around the Strait of Hormuz and continue technical discussions aimed at de-escalating the conflict. The move marks a shift from the weekend, when talks were reportedly suspended after US strikes on Iranian military targets in response to Tehran’s attacks on shipping vessels in the strategic waterway.
Meanwhile, Iran’s Islamic Revolutionary Guard Corps (IRGC) claimed responsibility for attacks on eight US military sites in Kuwait and Bahrain, describing them as retaliation for recent American strikes on Iranian facilities.
Market participants will remain focused on the outcome of the upcoming US-Iran talks. Any diplomatic progress could help secure oil flows through the Strait of Hormuz, a critical route that handles roughly one-fifth of global oil shipments, potentially putting further pressure on crude prices. Conversely, renewed hostilities could reignite concerns over supply disruptions and support higher oil prices.
Investors are also awaiting the latest weekly crude inventory data from the American Petroleum Institute (API) on Tuesday. A larger-than-expected decline in stockpiles would signal stronger demand and could provide support for WTI, while an unexpected inventory build may point to weaker consumption or excess supply, weighing on prices.
USD/CAD weakens as the oil-sensitive Canadian Dollar draws support from higher crude prices.
Oil prices advanced after an attack on a vessel near Oman disrupted UN evacuations through the Strait of Hormuz, reviving concerns over global energy supplies.
Meanwhile, the US Dollar could remain supported by rising expectations of a Federal Reserve rate hike, which continue to bolster demand for the Greenback.
USD/CAD extends its decline for a second straight session, hovering near 1.4200 during Friday’s Asian trading hours. The pair comes under pressure as the commodity-linked Canadian Dollar gains support from stronger crude oil prices. Canada, one of the world’s largest net oil exporters, relies heavily on petroleum exports as a key source of foreign exchange revenue.
Oil prices climbed after a suspected projectile strike on a cargo vessel near Oman forced the United Nations to suspend evacuation operations through the strategically important Strait of Hormuz, reigniting concerns over global energy supply disruptions.
Geopolitical tensions escalated further late Thursday after two US officials claimed Iranian forces had opened fire on the vessel while it was transiting the strait. Iranian authorities later warned that ships operating outside designated Hormuz routes could no longer be assured safe passage.
However, losses in USD/CAD may remain capped as the US Dollar continues to draw support from increasing expectations of another Federal Reserve rate hike. CME FedWatch data currently shows markets pricing in a 63.4% chance of a rate increase at the Fed’s September 15–16 meeting.
The hawkish outlook has been reinforced by stronger inflation readings. The headline Personal Consumption Expenditures (PCE) Price Index accelerated to 4.1% year-over-year in May from 3.3% previously, marking the first time in three years that the gauge has risen above 4.0%. The surge was largely driven by higher energy costs linked to Middle East tensions, keeping expectations for additional tightening alive.
Meanwhile, the Fed’s preferred inflation measure, the core PCE index, edged higher to 3.4% annually from 3.3%, its strongest pace since October 2023, underscoring persistent inflation pressures that continue to underpin the Greenback.
WTI crude oil entered a phase of bearish consolidation after sliding to its lowest level since March, with sentiment remaining weighed down by easing supply concerns. The resumption of shipping activity through the Strait of Hormuz reduced fears of major supply disruptions, putting additional pressure on oil prices.
However, the downside appears somewhat limited as traders remain cautious amid mixed signals surrounding relations between the United States and Iran. Conflicting statements regarding nuclear negotiations and broader geopolitical developments have discouraged market participants from aggressively increasing bearish positions, helping WTI hold above the mid-$72.00s region.
West Texas Intermediate (WTI) crude oil traded in a narrow range during Wednesday’s Asian session, consolidating just above the mid-$72.00s per barrel after falling to its lowest level since early March in the previous session.
Oil prices remained under pressure as signs of improving supply conditions eased market concerns. Shipping activity through the Strait of Hormuz has gradually resumed, with reports indicating that a limited number of vessels are being allowed to transit the strategic waterway each day under coordination with Iran’s naval authorities. At the same time, the United States Department of the Treasury granted a temporary 60-day sanctions waiver permitting the production, transportation, and sale of Iranian crude oil, petroleum, and petrochemical products through August 21. Combined with progress in diplomatic discussions between the United States and Iran, as well as a reduction in hostilities involving Lebanon, these developments have helped alleviate fears of supply disruptions and reinforced the bearish outlook for crude prices.
However, sellers remain cautious about extending losses aggressively due to lingering geopolitical uncertainty. While Donald Trump stated that Iran had agreed to extensive long-term nuclear inspections, Iranian officials pushed back against the claim, insisting that no new commitments had been made regarding inspections. The conflicting narratives have kept geopolitical risk premiums embedded in the market, offering some support to oil prices.
From a technical perspective, the absence of strong follow-through selling below the closely watched 200-day Simple Moving Average (SMA) suggests that downside momentum may be losing pace in the short term. Even so, with supply concerns continuing to ease and diplomatic progress reducing immediate geopolitical risks, the broader fundamental backdrop still points to a bearish bias for WTI crude oil.
The US Dollar Index (DXY) advanced to a fresh 13-month high of 101.45 on Wednesday, supported by strong domestic economic data and a complex geopolitical backdrop that continued to underpin demand for the Greenback. Further boosting sentiment, the US S&P Global Composite PMI rose to 52.2, surpassing May’s 51.5 reading and indicating that business activity in the United States remained on a solid expansionary path.
The US Dollar Index (DXY), which tracks the US Dollar’s performance against a basket of six major currencies, remained firmly supported for a third straight session, trading near a fresh 13-month high of 101.45 during Wednesday’s Asian trading hours.
The Greenback continued to draw strength from a combination of solid US economic fundamentals and an evolving geopolitical environment. Market participants weighed conflicting developments surrounding a potential diplomatic opening between the United States and Iran. While Donald Trump claimed that Tehran had fully agreed to allow nuclear inspections, Iranian Foreign Minister Abbas Araghchi cautioned that meaningful nuclear negotiations have yet to commence.
Geopolitical tensions remained elevated after Iran’s lead negotiator emphasized that the strategic Strait of Hormuz would not return to its pre-conflict status and would remain under Iranian control. At the same time, diplomatic efforts elsewhere appeared constructive, with Washington hosting a new round of discussions between Israel and Lebanon aimed at securing a ceasefire involving the Iran-backed Hezbollah.
On the economic front, upbeat US data reinforced the narrative of American economic resilience. The preliminary June S&P Global Composite PMI rose to 52.2, exceeding May’s 51.5 reading and signaling continued expansion in overall business activity.
The manufacturing sector remained particularly strong, with the output index climbing to 55.7 from 55.1, outperforming expectations of 54.8. Meanwhile, the Services PMI improved to 51.3 from 50.7, slightly above the market forecast of 51.0, highlighting persistent strength in service-sector demand. Investors now turn their attention to the May Personal Consumption Expenditures (PCE) Price Index, due on Thursday, for further clues on inflation trends.
According to the CME FedWatch Tool, expectations for a more hawkish stance from the Federal Reserve have strengthened considerably. Markets are currently pricing in an 86.1% probability of a rate hike in December, up sharply from 61% prior to last week’s FOMC meeting.
Gold remained under pressure, extending its decline as growing expectations of additional Federal Reserve rate hikes continued to strengthen the US Dollar. Meanwhile, easing inflation concerns provided little incentive for buyers to return to the market, leaving the precious metal vulnerable. With technical indicators still pointing lower, traders are increasingly focused on upcoming US PCE inflation data for clues on the Fed’s next policy move.
Gold (XAU/USD) remains under pressure for a second consecutive session, marking its fifth decline in the last six trading days, and slips to its lowest level in nearly two weeks during Wednesday’s Asian trading hours. Although falling crude oil prices have helped ease inflation concerns, markets are increasingly pricing in the possibility of another interest rate hike from the US Federal Reserve in 2026. This expectation has lifted the US Dollar (USD) to its strongest level since May 2025, reducing demand for non-yielding assets such as gold.
Oil prices have dropped sharply over the past month and reached their lowest point since early March on Wednesday following the gradual reopening of shipping routes through the Strait of Hormuz. According to Iran’s Fars News Agency, a military source confirmed that a limited number of vessels are being permitted to transit the waterway each day under the supervision of Iran’s Revolutionary Guards Navy. At the same time, the US Treasury granted a temporary 60-day sanctions waiver allowing the production, transportation, and sale of Iranian crude oil and petrochemical products. These developments have eased concerns about global energy supplies, keeping downward pressure on oil prices and reducing inflationary risks.
Despite softer inflation expectations, investors have strengthened their bets that the Fed could raise interest rates by at least 25 basis points in 2026 after last week’s hawkish policy guidance. Nine out of the Fed’s 19 policymakers indicated that further tightening may be necessary to keep inflation under control. Reinforcing this view, newly appointed Fed Chair Kevin Warsh emphasized the importance of price stability during his post-meeting remarks, signaling that the central bank may be reluctant to cut rates even if economic growth slows.
Meanwhile, conflicting signals surrounding Iran’s nuclear program continue to support the US Dollar. US Vice President JD Vance stated on Monday that negotiations in Switzerland had led Iran to agree to allow inspectors from the International Atomic Energy Agency (IAEA) access to its nuclear facilities. President Donald Trump also claimed that Tehran had accepted the highest level of nuclear inspections for the foreseeable future. However, Iran’s foreign ministry, quoted by state media, denied making any new commitments regarding inspections. The uncertainty surrounding these negotiations maintains geopolitical risk in the market, supporting the dollar and adding further downside pressure to gold prices.
Market participants are now awaiting Thursday’s release of the US Personal Consumption Expenditures (PCE) Price Index, which could provide fresh direction for both the dollar and gold markets.
XAU/USD 4-hour chart
Following several failed attempts to break above the 100-period Simple Moving Average (SMA) on the 4-hour chart, a decisive move below the $4,100 level could provide fresh momentum for XAU/USD sellers. Technical indicators continue to favor the downside, with the Relative Strength Index (RSI) lingering near oversold territory around 31, while the Moving Average Convergence Divergence (MACD) remains firmly negative and continues to trend lower. Although occasional short-covering rallies may occur, the broader technical outlook suggests that bearish pressure remains intact, increasing the likelihood of a move back toward the year-to-date low around $4,024-$4,023, which was recorded earlier this month.
On the upside, the 100-period SMA at $4,287.33 represents the first significant resistance level. A sustained break above this barrier would be required to weaken the current bearish outlook and potentially pave the way for a broader consolidation phase. Until such a breakout materializes, rallies into the $4,280-$4,290 zone are likely to attract renewed selling interest, particularly as momentum indicators continue to show little evidence of a lasting bullish reversal.
United States Dollar Index remains close to 13-month highs
The United States Dollar Index stays near a 13-month peak around 101.13, supported by hawkish expectations surrounding the Federal Reserve policy outlook. Meanwhile, US Vice President JD Vance stated that negotiations have achieved “great progress,” despite lingering tensions behind the scenes.
The United States Dollar Index (DXY), which tracks the US Dollar against six major currencies, traded steadily near the 101.00 mark during Tuesday’s Asian session after posting modest gains in the previous session.
The index continues to hover close to its 13-month high of 101.13, reached on June 19, as markets maintain a hawkish view on the Federal Reserve policy outlook. The Fed kept interest rates unchanged at 3.50%–3.75% during its June meeting.
Still, updated economic forecasts and remarks from Kevin Warsh, who chaired his first Fed meeting, were viewed as more hawkish than expected. Following the announcement, futures markets fully priced in a 25-basis-point rate hike for September, while also assigning a small probability to a potential increase as early as next month.
Despite the Dollar’s resilience, easing geopolitical tensions may limit further upside. Ongoing peace discussions between the US and Iran have improved market sentiment and reduced inflation concerns. According to CNBC, US Vice President JD Vance said negotiations had made “great progress,” although some tensions remain unresolved.
On Monday, Vance also stated that Iran had agreed to allow inspectors from the International Atomic Energy Agency back into the country. Iranian Foreign Minister Abbas Araghchi echoed the positive tone, noting that the Switzerland talks had produced “major progress.”
Gold holds steady near $4,200 as US–Iran peace progress offset by Fed hawkish stance
Gold prices remain flat near $4,190 during early Asian trading on Tuesday. Progress in US–Iran peace negotiations may pressure the precious metal, while expectations of a Fed rate hike later this year grow after the new Fed Chair struck a hawkish tone.
Gold prices remained steady near $4,190 during Tuesday’s early Asian session as traders monitored ongoing developments surrounding the US–Iran peace negotiations.
US Vice President JD Vance said talks between Washington and Tehran had made “great progress,” despite recent tensions. He noted that negotiations in Bürgenstock were continuing and that Iran had agreed to allow inspectors from the International Atomic Energy Agency back into the country.
However, discussions became strained after Iran announced the closure of the Strait of Hormuz in response to Israeli strikes on Lebanon, arguing the attacks violated the ceasefire agreement.
According to Saxo Bank analyst Ole Hansen, energy prices remain a major short-term driver for precious metals. He added that the uneven progress in US–Iran talks could pressure oil prices while supporting demand for gold.
Meanwhile, expectations for tighter US monetary policy also weighed on bullion. Markets increasingly anticipate a Federal Reserve rate hike later this year after new Fed Chair Kevin Warsh adopted a hawkish stance on inflation during his first policy meeting. Higher interest rates tend to reduce gold’s appeal since the metal does not offer yields.
Traders are now pricing in nearly an 89% probability of a Fed rate hike in December, up sharply from 61% before last week’s FOMC meeting, according to the CME FedWatch Tool.
Fresh negotiations between the United States and Iran were abruptly cancelled, reviving concerns about whether the recently agreed ceasefire can hold.
The talks had been planned for Friday in Switzerland and were intended to continue discussions on Iran’s nuclear program under a memorandum of understanding aimed at ending recent hostilities. However, they were called off soon after U.S. Vice President JD Vance withdrew from the meeting.
Iranian state-linked media said Tehran is seeking stronger proof that Washington is fully honoring the agreement before agreeing to resume negotiations. While the cancellation does not automatically signal a breakdown in the peace process, it underscores that significant mistrust remains between both sides.
Oil markets reacted negatively, with prices declining again in London trading on Friday and heading for their steepest weekly loss in months. Earlier optimism around the U.S.–Iran understanding had raised expectations of additional oil supply returning to global markets.
Both major benchmarks are now on track to fall nearly 10% for the week, trading close to their lowest levels since early March. The conflict between the two countries initially escalated in late February.
A key element of the agreement involves the gradual reopening of the Strait of Hormuz—an essential route for about one-fifth of global oil and LNG flows—which has been largely disrupted during the conflict.
Still, investors remain cautious that any renewed escalation could tighten energy supply, revive inflation pressures, and increase volatility across global financial markets.
At the same time, a more hawkish shift among major central banks suggests policymakers are increasingly focused on controlling inflation, even if it limits support for risk assets such as precious metals.
Recent policy meetings have reinforced this tone. The European Central Bank delivered its first rate hike since 2023, followed by the Bank of Japan, which raised borrowing costs to their highest level since 1995.
Both institutions pointed to inflation risks linked to potential energy disruptions from instability around the Strait of Hormuz as a key justification for tighter policy.
In the United States, the Federal Reserve left rates unchanged but signaled a stronger tightening bias ahead, with nine officials projecting further hikes this year. The latest statement under new Chair Kevin Warsh emphasized “price stability” and dropped earlier references to maximum employment.
Similarly, the Bank of England held rates steady but maintained a hawkish voting split despite softer inflation and labor data, according to Barclays analysts.
Turning to gold, futures have shown a sustained downward trajectory after peaking at $5,643.29, with a steep decline forming since January 2026.
Despite a brief rebound toward $4,577.30, prices have since fallen to a low of $4,046.20 and were last trading near $4,173.25. This keeps the market vulnerable to further downside, particularly if it breaks below the 20-day EMA around $3,885, especially amid renewed geopolitical uncertainty following the postponed talks.
Technical Levels to Watch
Monthly chart: Gold futures remain in a broad downtrend, having broken below the 9 EMA ($4,368). The next major support is the 20 EMA near $3,885, and a break below this level could accelerate selling pressure.
Weekly chart: Prices opened the week at $4,289.40, reached a high of $4,403.60 and a low of $4,139.20, and are now trading below the 50 EMA ($4,264). A bearish crossover has formed, with shorter-term EMAs trading below longer-term ones, leaving the market vulnerable to a move toward support around $4,124.
Daily chart: After opening at $4,207.47, gold moved between $4,216.90 and $4,139.20, currently trading below the 200 EMA ($4,305.84). Multiple EMAs have turned bearish, reinforcing downside momentum and leaving $4,124 as the immediate level to watch.
Friday’s closing price will likely be important in determining near-term direction, though weekend geopolitical developments—particularly shifts in U.S. policy—could still influence sentiment.
Overall, a decisive break below $4,124 could trigger accelerated selling over the short term, although confirmation will depend heavily on where the market settles into the weekly close.
Recent tensions in the Middle East have reignited discussion over whether the petrodollar system is beginning to weaken. Our view remains cautious. While a degree of diversification in how oil trades are settled is plausible, the more important issue is where Gulf oil revenues are ultimately invested. In both areas, any shift is likely to be incremental rather than disruptive.
The latest geopolitical developments have once again put the petrodollar debate in the spotlight. Markets are now asking whether disruptions in energy flows could speed up the adoption of non-dollar currencies in oil-related transactions. This is significant, as it feeds into broader questions about the dollar’s global dominance.
However, it would be premature to declare the “end of the petrodollar.” As with other de-dollarisation narratives, the underlying reality appears far more measured than headline-driven commentary suggests. It is useful to distinguish between trade invoicing and capital allocation. On the trade side, factors such as China’s rising role as a major Gulf energy buyer, the gradual expansion of renminbi payment systems, and experimentation with alternative settlement mechanisms are all noteworthy. Yet the dollar’s international position is equally, if not more, dependent on how surplus revenues from energy exporters are invested globally.
This is the central issue examined here. Overall, while there may be some gradual diversification in both trade settlement and investment flows, the core structure of the petrodollar system still appears deeply entrenched and difficult to displace.
Executive Summary
Oil settlement shift remains unproven. Data from March 2026 shows a temporary increase in renminbi-denominated settlement activity through China’s Cross-Border Interbank Payment System (CIPS), coinciding with the outbreak of the Iran conflict. However, this spike proved short-lived, with flows normalising in April and May. SWIFT trade finance data similarly indicates only a modest uptick in March, set against a broader gradual rise that began in 2022–2024. China’s expanding economic footprint in the Gulf remains an important structural factor, with its share of GCC trade rising to roughly 21% over the past decade. This has been accompanied by incremental progress in non-dollar settlement infrastructure, including the UAE–China swap arrangement, participation in mBridge, and cooperation between the UAE central bank and CIPS.
Gulf savings accumulation keeps sovereign wealth in focus. Excluding Saudi Arabia, GCC economies are expected to generate combined current account surpluses of around $150bn annually over the next five years, translating into roughly $0.8tr in external savings accumulation by 2030. Gulf sovereign wealth funds collectively manage about $6tr in assets, with the UAE alone estimated at around $2.7tr. This raises the central question of how these large pools of capital are allocated globally. On balance, GCC external portfolios remain heavily dollar-weighted, with around 69% of BIS-tracked international assets denominated in USD versus 46% globally, suggesting a stronger USD bias than the global average, even if sovereign wealth fund allocations are not fully captured in these figures.
What de-dollarisation could realistically look like. From a trade invoicing perspective, China’s role in GCC energy trade implies an upper bound of roughly $300bn in annual flows that could, in theory, shift toward yuan settlement under extreme scenarios. From an investment perspective, de-dollarisation would more likely emerge through a slowdown in new USD allocations rather than large-scale reallocation of existing holdings. Even a reduction in incremental USD investment flows to below about $100bn per year would signal a meaningful directional change.
GCC’s global role: significant but not system-defining. The Middle East accounts for roughly a quarter of global fuel exports, while fuel trade itself represents only 10–12% of total global merchandise trade. This limits the systemic impact of any GCC-driven de-dollarisation on the broader international monetary system. Overall de-dollarisation trends remain gradual, pointing to incremental diversification rather than a structural break. While the euro and renminbi may increasingly compete at the margins, the dollar’s dominance continues to be supported by entrenched network effects.
Market implications. Persistent USD dominance in GCC energy invoicing reinforces dollar network advantages, while USD funding markets demonstrated resilience even during the March peak in geopolitical stress.
Shift in Oil Settlement: Evidence Remains Inconclusive
The renewed conflict in the Middle East has reignited debate over whether momentum is building toward greater use of non-dollar currencies in energy invoicing. However, publicly available data remains limited and does not yet point to a clear structural shift. The increase in renminbi settlement activity seen in March through China’s CIPS system has been highlighted by some observers, including the European Central Bank, as a potential early signal of changing energy trade dynamics.
That said, the overall picture remains mixed. Following a temporary surge in March, CIPS transaction volumes eased back toward more typical levels in April and May, despite continued geopolitical tensions. SWIFT trade finance data offers a similar pattern: while renminbi usage had already been gradually rising through 2022–2024, the March 2026 increase was relatively modest and was followed by some decline in April, suggesting no sustained acceleration in non-dollar settlement activity so far.
The surge in CNY transactions seen in March so far looks to be a one-time event
China’s expanding economic footprint in the Gulf is an important factor to monitor. Expectations of greater renminbi use in Gulf energy trade are primarily driven by commercial rather than geopolitical considerations, as GCC countries are not subject to sanctions and retain flexibility in their choice of settlement currencies.
The commercial rationale begins with trade patterns. China’s share of GCC exports and imports has almost doubled over the past decade, reaching roughly 21%.
At the same time, Gulf trade has shifted increasingly toward emerging markets, which now represent about 60% of the GCC’s external trade—reversing the situation seen 25 years ago.
This shift is significant for global energy flows, given that the GCC accounts for 51% of total external trade turnover among emerging market fuel exporters in IMF classifications (excluding Russia, which is treated separately as a more diversified commodity producer). Within the GCC, the UAE has also surpassed Saudi Arabia in total external trade volumes over the past decade.
China’s share of GCC trade flows has almost doubled over the past decade, reaching 21% in annual turnover terms.
From a global trade and increasingly multipolar perspective, there is a gradual trend toward less dollar-exclusive energy settlement. This reflects China’s deepening trade ties with major exporters and the parallel development of alternative payment systems. Initiatives such as the UAE–China currency swap agreement, participation in mBridge, and the UAE central bank’s MoU with CIPS all indicate a slow but steady expansion of supporting infrastructure.
China’s renminbi internationalisation has progressed unevenly over the past two decades, but the overall direction has been toward broader use in trade settlement and payments. As China has become the largest trading partner for an increasing number of countries, greater RMB-denominated settlement has followed as a natural outcome of deeper trade integration.
A notable recent development during the Iran conflict was reports that Iran requested payments in Bitcoin or CNY, highlighting growing consideration of the renminbi as an alternative to the US dollar system, particularly as a way to mitigate exposure to US sanctions. Geopolitical factors may therefore continue to influence RMB adoption.
At the same time, policymakers have prioritised financial stability over rapid internationalisation. This approach is unlikely to change even amid de-dollarisation narratives. Limited capital account convertibility continues to constrain RMB internationalisation, and its role as a reserve currency remains relatively modest.
Nonetheless, policy efforts are ongoing. President Xi Jinping has emphasised the goal of a “powerful currency”. The People’s Bank of China has recently introduced a repo facility for foreign central banks, international financial institutions, and sovereign wealth funds, allowing them to access RMB liquidity using Chinese government bonds, central bank bills, and policy bank bonds as collateral. This could support greater RMB usage by providing access to China’s relatively low interest rates.
China currently maintains 32 currency swap lines totalling up to RMB 4.5 trillion. These arrangements have increasingly evolved from symbolic frameworks into operational liquidity tools. By the end of 2025, outstanding RMB drawn by overseas central banks had reached RMB 94.2 billion.
China continues to expand the infrastructure supporting RMB internationalisation.
However, greater Gulf exposure to China does not imply an erosion of the dollar’s role as a petro-currency. China’s rising share in global trade does not automatically translate into a proportional increase in RMB usage. Moreover, if Gulf economies continue to invest heavily in domestic energy, logistics, and defence infrastructure, their import demand is likely to remain diversified across both advanced and emerging market partners.
On swap lines, earlier this year there was significant attention on the UAE’s reported request for a standing US dollar swap line to join the group of major developed-market central banks such as the euro area, Japan, the UK, Switzerland, and Canada. Although this discussion has since faded from view, it suggests that the UAE continues to view itself firmly within the dollar-based monetary system, supported by its USD/AED currency peg.
The Gulf Continues to Build Oil-Related Savings…
The Gulf continues to build up significant oil-related savings. A key issue for the dollar narrative is not simply how Gulf trade is invoiced, but whether the region still generates sufficiently large external surpluses to remain influential in global capital flows. Some analysts argue that higher domestic spending and imports have reduced GCC current account surpluses to the point where the region is no longer a meaningful capital exporter.
However, IMF forecasts suggest a different picture. They indicate that the GCC as a whole will still accumulate substantial external surpluses. While Saudi Arabia is expected to remain closer to a balanced or even deficit position, the rest of the GCC—particularly the UAE, Qatar, and Kuwait—continues to stand out as a major source of savings. Excluding Saudi Arabia, the region is projected to generate around $150 billion in annual current account surpluses over the next five years, even assuming oil prices of $70–80 per barrel. This would amount to roughly $0.8 trillion in cumulative surpluses by 2030, which would need to be deployed into global financial assets.
The Gulf Continues to Build Oil-Driven Financial Surpluses
A key issue for the dollar narrative is not simply how Gulf trade is invoiced, but whether the region still generates sufficiently large external surpluses to remain influential in global capital markets. Some argue that higher domestic spending and imports have eroded GCC current account surpluses, reducing its role as a major exporter of capital.
However, IMF projections point in a different direction. Even if Saudi Arabia is expected to hover closer to balance or even modest deficits, the broader GCC remains a significant source of external savings. Excluding Saudi Arabia, countries such as the UAE, Qatar, and Kuwait are projected to generate combined current account surpluses of around $150bn per year over the next five years, assuming oil prices remain in the $70–80 per barrel range. Over this period to 2030, this translates into an estimated cumulative surplus of roughly $0.8tr that will need to be deployed into global financial assets by the GCC excluding Saudi Arabia.
Excluding Saudi Arabia, the GCC is projected to generate around $0.8tr in current account surpluses through 2030
Persistent external surpluses in the Gulf mean the region remains structurally important not only for trade invoicing, but also for shaping the currency composition of global financial assets. In the GCC, sovereign wealth funds play a central role in recycling these surpluses. As discussed previously, in hydrocarbon-exporting economies these funds often dominate external investment activity, far outweighing central bank reserve holdings.
Originally designed to preserve and grow finite oil and gas wealth for future generations, GCC sovereign wealth funds have expanded into major global investors, with combined assets under management of roughly $6tr. This represents more than one-third of the total assets held by the world’s 100 largest sovereign wealth funds. The UAE alone accounts for an estimated $2.7tr, making it the largest sovereign wealth hub in the region. Four of the six GCC countries rank among the world’s top ten sovereign wealth fund holders, underscoring the scale of their global financial footprint. These allocation decisions are therefore as relevant to the evolution of the petrodollar system as trade invoicing patterns.
GCC sovereign wealth: Scale and global relevance
Top-tier sovereign wealth ownership is heavily concentrated in the Gulf, reinforcing its systemic importance in global capital flows.
At the same time, the GCC remains broadly USD-oriented in its external investment profile. However, measuring this exposure precisely is difficult due to limited transparency. The IMF’s COFER dataset captures only central bank reserves, which are relatively small in the Gulf compared with sovereign wealth funds. Meanwhile, SWFs disclose little detail on currency composition. Even US Treasury data is distorted by custodial holdings in financial hubs such as the UK, Switzerland, and the Benelux countries.
As a result, indirect measures are used. One useful proxy comes from BIS locational banking statistics, which track the currency composition of cross-border banking claims and liabilities. While imperfect and not fully capturing sovereign wealth activity, it provides a useful indicator of external financial currency exposure.
On this basis, GCC external portfolios remain heavily dollar-centric. By end-2025, around $0.6tr—about 69% of international assets linked to GCC financial and non-financial sectors—were denominated in US dollars, significantly above the global average of roughly 46%. In contrast, euro exposure is relatively low at around 8%, compared with a global share of 34%. The region also shows a somewhat higher allocation to non-core currencies. Notably, rather than declining, the dollar share of GCC cross-border assets has actually increased over the past decade, diverging from broader global diversification trends.
GCC External Financial Exposure Remains Strongly USD-Weighted by Global Standards
Pre-2025 currency shares have been recalculated using end-2025 FX rates.
While BIS locational banking statistics are an imperfect proxy for sovereign wealth fund currency allocation—since most SWFs are structured outside domestic banking systems—they still offer a useful directional signal.
There are several reasons why this proxy is informative. First, the GCC’s currency pegs to the US dollar naturally reinforce USD dominance across both trade and capital flows, anchoring financial behavior to the dollar. Second, international comparisons provide validation. Norway is a useful benchmark because its sovereign wealth fund discloses detailed currency composition. In Norway’s case, BIS cross-border banking data does not exactly mirror the sovereign fund’s allocation, but it does reproduce the broad hierarchy of currencies quite accurately: the US dollar is dominant, followed by a group of non-core currencies, with the euro lagging behind. This supports the view that BIS-based measures can still capture meaningful structural patterns.
Norway cross-check supports BIS signal reliability
The Norwegian case suggests BIS banking data may not precisely match sovereign fund allocations, but it does reflect their overall currency ordering.
If the BIS-derived GCC data similarly reflects sovereign wealth fund behavior, it implies that a substantial share of Gulf sovereign wealth is already concentrated in dollar assets. On this basis, at least around $4tr of assets may be USD-denominated, compared with much smaller exposures to non-core currencies (approximately $0.6tr) and the euro (around $0.5tr).
In other words, the evidence suggests that GCC sovereign wealth is already heavily dollar-centric at scale, even if precise allocation data remains opaque.
What Gulf De-Dollarisation Could Realistically Look Like
The question is not whether Gulf de-dollarisation is likely, but what its practical upper bound would be if it were pursued as a stress scenario rather than a baseline forecast.
A useful extreme reference point is Russia. Since 2014—and especially after 2022—Russia’s external trade and reserves have shifted sharply toward China and the renminbi, driven by sanctions and constraints on access to traditional reserve assets. By 2025, the RMB share of Russia’s trade invoicing had risen to roughly match China’s share of its trade (around 30–33%), and the yuan also became a dominant reserve asset due to limited alternatives.
In Russia’s case, trade settlement increasingly aligned with the structure of its external trade, with China playing a central role in both imports and exports.
However, the GCC is fundamentally different. Its geopolitical position, financial integration, and market depth make a direct analogy misleading. At most, Russia provides a “stress boundary” for how far currency diversification can go under extreme constraints. In the Gulf, China accounts for roughly 20% of external trade, implying that even in an aggressive scenario, RMB invoicing might plausibly rise only to around that level. On that basis, up to roughly $300bn of the GCC’s estimated $1.5tr annual trade turnover could, in an extreme case, be invoiced in renminbi.
Trade shift potential is bounded, not open-ended
Even under aggressive assumptions, currency diversification in trade would likely remain structurally capped by actual trade composition.
The constraints are even more binding on the asset side. GCC sovereign wealth funds are too large and too globally embedded to be rapidly reallocated. As a result, any de-dollarisation process would likely occur incrementally through new annual flows rather than through reshaping the existing stock of assets.
Given projected current account surpluses of about $150bn per year, even a scenario where USD allocation falls below 70% of new inflows—roughly $100bn annually—would already represent a meaningful shift toward diversification. But even then, the dollar would remain dominant in accumulated wealth.
Importantly, this still falls far short of any rapid or wholesale exit from USD exposure as the primary store of Gulf wealth.
So far, most of the discussion around alternatives has focused on the renminbi. However, a more realistic end-state is likely multipolar rather than binary, with dollars, euros, RMB, and other currencies coexisting. The euro, in particular, appears unlikely to displace the dollar in energy markets. The eurozone accounts for only about 11% of GCC trade, and Europe itself has shown limited appetite to challenge USD dominance in oil pricing, despite some success in gas and carbon benchmarks.
That said, Europe’s financial markets are gradually becoming more competitive. Euro-denominated debt issuance rose sharply in 2026, up around 30% to a record $1.1tr, driven by stronger international participation and increased “Reverse Yankee” activity. While policy progress on deeper capital markets integration remains uneven, demand for euro-denominated assets has improved.
Stablecoins are sometimes mentioned as a potential new settlement layer for energy trade, but current evidence remains highly speculative. Where they are used, they tend to reinforce dollar dominance rather than weaken it, since most stablecoins are ultimately backed by USD assets. For example, Tether ranks among the largest holders of US Treasuries globally.
The Gulf remains central, but not decisive alone
Even if GCC invoicing or allocation patterns were to diversify, global outcomes would still depend on the broader energy system, not just the Gulf.
The Middle East accounts for roughly one-quarter of global fuel exports, meaning it is influential but not determinative of global pricing or currency use. Post-2022 shifts have also increased the role of the United States as a major energy exporter, especially in LNG.
According to the IEA’s medium-term projections, the Americas are expected to retain a strong position in global fuel markets, particularly in oil, with North and Latin America together holding about a 38% share versus roughly 33% for the Middle East.
In that context, the global energy system may be becoming more geographically fragmented, but not necessarily less dollar-centric.
Middle East Still Accounts for About a Quarter of Global Fuel Exports, While the Americas Remain a Strong Competitor
This underscores a key point: any serious “petrocurrency” argument must address two dimensions simultaneously. First, whether the Gulf itself gradually reduces its reliance on the US dollar in trade settlement and external savings. Second, whether any such shift is large enough to meaningfully alter global currency aggregates.
Broader de-dollarisation remains gradual
The petrocurrency debate is an important subset of the wider de-dollarisation discussion, particularly in relation to the UAE’s increasing global energy ambitions following its BRICS+ participation and more assertive production strategy. However, current evidence still points toward a slow-moving global adjustment rather than a structural break.
To begin with, global fuel trade itself is relatively small in the context of world commerce—only around 10–12% of total merchandise exports.
More importantly, international institutions consistently find that the US dollar remains the dominant currency in trade invoicing. The IMF reports no clear, broad-based shift away from the dollar in oil trade, while ECB analysis similarly shows that the dollar and euro together still account for more than 80% of global invoicing, with the renminbi remaining marginal at the global level.
Limited transmission from Gulf shifts to global currency structure
This matters for interpreting any potential diversification in Gulf energy settlement. Even if parts of energy trade become less exclusively dollar-based, the global impact would likely be muted unless accompanied by a broader reconfiguration of global financial markets.
The dollar’s dominance is not anchored solely in trade flows, but in the deeper structure of global finance—central bank reserves, private cross-border assets and liabilities, and the scale of USD-denominated debt and securities markets.
In fact, broader dollarisation indicators suggest that while there has been some long-term diversification—particularly on the asset side—this process has recently slowed. By 2025, several measures of de-dollarisation show signs of stagnation, reflecting the lack of deep alternative markets outside the US dollar and euro segments.
De-dollarisation has stalled at the margin
A key structural constraint remains the limited depth of non-USD and non-EUR debt markets, which restricts the ability of global investors— including sovereign wealth funds—to meaningfully diversify at scale.
Incremental change, not systemic shift
None of this implies a static system. Gradual increases in euro and renminbi settlement in selected energy transactions are plausible, as is a modest rebalancing in how Gulf surpluses are deployed.
But the broader picture remains one of incremental adjustment rather than systemic rupture: parts of the Gulf economy may become slightly less dollar-centric at the margin, without materially dislodging the dollar’s central role in global trade and financial architecture.
Market Implications
The advantages of the US dollar in international finance and invoicing are well established, largely driven by powerful network effects. Recent ECB analysis estimates that of the roughly 190 basis points of “convenience yield” earned by foreign investors holding US Treasuries, about 170 basis points is attributable specifically to the dollar’s reserve-currency status and global utility. In that context, continued Gulf exporters’ earnings and reinvestment in USD assets remain an important structural support for relatively low US government borrowing costs.
A related question that emerged during periods of geopolitical stress was whether developments in the Middle East could materially affect global dollar funding conditions. Specifically, could GCC economies—given their role as global oil exporters and financial intermediaries—be large enough providers of dollar liquidity through wholesale funding or commercial paper markets to tighten global USD funding if disrupted?
In FX markets, stress in dollar liquidity is typically reflected in the cross-currency basis swap market, where European institutions, for example, may effectively pay up to obtain dollars by swapping euros at a discount. During the peak of recent tensions in March, however, this indicator remained broadly stable, suggesting that global dollar funding markets were resilient and that any shock from the region remained localised rather than systemic.
Dollar funding resilience during stress episodes
Cross-currency basis swaps showed limited movement, reinforcing the depth and stability of USD funding markets even under geopolitical strain.
The broader petrodollar framework may be evolving, but only gradually. Recent geopolitical tensions have renewed attention on whether major energy producers and consumers will increasingly settle transactions in non-dollar currencies, and there are signs of marginal diversification—particularly with China’s growing role in Gulf trade and the gradual development of alternative payment infrastructures.
However, this should not be mistaken for a rapid erosion of dollar dominance. The key issue is not only the currency used in trade invoicing, but the destination of accumulated oil surpluses. On this front, the adjustment appears even slower. The Gulf continues to generate sizeable external surpluses, sovereign wealth funds remain the primary mechanism for recycling them, and available balance-sheet evidence still points to a financial system that is more dollar-weighted than the global average.
Bottom line
While the euro, the renminbi, and other non-core currencies can introduce greater competition at the margin—both in settlement and in incremental portfolio allocation—the evidence does not support a rapid de-dollarisation of the global system. Structural constraints, limited deep alternative markets, and entrenched network effects mean that any transition is likely to remain gradual. For now, the US dollar remains firmly embedded at the centre of global energy and financial flows.
Oil prices weakened after the US and Iran signaled advances in diplomatic talks.
Tehran says it secured waivers allowing continued oil and petrochemical exports.
A sustained reopening of the Strait of Hormuz could push WTI back toward the pre-war area around $67.20.
West Texas Intermediate (WTI) crude futures on NYMEX fell 1.2% to around $75.50 during Monday’s Asian session, surrendering early gains as optimism grew over diplomatic progress between the United States and Iran following negotiations held in Switzerland over the weekend.
Iranian Foreign Minister Abbas Araghchi described the talks as having achieved “great progress,” stating that Tehran had secured waivers for oil and petrochemical exports, the lifting of the US naval blockade on Iranian ports, the release of certain frozen assets, and the initiation of a reconstruction and development program.
The positive remarks from Tehran carried particular weight because Iran had recently announced the renewed closure of the Strait of Hormuz, citing ongoing hostilities in Lebanon. Any indication of easing tensions reduces concerns over potential disruptions to global oil supplies.
US Vice President JD Vance also welcomed the outcome of the negotiations, describing the discussions with Iranian representatives as productive and highlighting substantial progress toward a broader agreement.
Adding to the constructive sentiment, mediators from Qatar and Pakistan reported meaningful advances in the peace process. A joint statement indicated that a high-level committee had agreed on a roadmap aimed at reaching a final agreement within 60 days, paving the way for immediate technical negotiations.
Further easing supply concerns, a spokesperson for Iran’s Foreign Ministry announced that a formal transit mechanism had been established to ensure the safe passage of commercial vessels through the Strait of Hormuz, a crucial chokepoint for global energy shipments.
With geopolitical risk premiums fading and concerns over supply disruptions diminishing, oil markets are increasingly pricing in the possibility that WTI could continue retreating toward pre-conflict levels if stability in the region is maintained.
WTI Technical Analysis
WTI crude remains under pressure, trading near $75.50 and maintaining a bearish short-term outlook. The commodity continues to trade significantly below its 20-day Exponential Moving Average (EMA) at approximately $84.05, indicating that any near-term rebounds are likely to be corrective rather than the start of a sustained uptrend. Meanwhile, the Relative Strength Index (RSI 14) is hovering around 33, reflecting persistent selling momentum and suggesting that downside risks remain dominant.
On the upside, the 20-day EMA at $84.05 serves as the first major resistance level. A decisive break above this barrier would be required to weaken the current bearish structure and could pave the way for a stronger recovery toward the $90.00 region.
To the downside, immediate support is located at the June 18 low of $72.79. A breakdown below this level could accelerate selling pressure and expose the market to a deeper decline toward the pre-conflict price zone around $67.20. As long as WTI remains below the 20-day EMA, the broader near-term bias is likely to stay tilted to the downside.
The peace dividend is real, but the bigger story for oil may be the delayed release of Gulf crude into an Asian market that is already better supplied than it was just a few months ago.
Falling oil prices provide support for bonds and a select group of equity leaders, but they do not automatically eliminate the inflation risks that have recently pushed the Fed toward a more hawkish stance.
The 24–48 hour rule after a central-bank surprise remains relevant: betting against the Fed too quickly can be costly, particularly when the US dollar is gaining momentum.
The more compelling opportunity may emerge after the initial dollar rally fades, when gold and major currencies reveal whether weaker energy prices are starting to undermine the Fed’s inflation narrative.
As option-related market support fades, investors could face greater volatility just as the peace trade, the oil-overhang trade, and the Fed trade begin pulling markets in different directions.
The Fed’s Hard Edge
Wall Street delivered the kind of rebound that appears straightforward at first glance but becomes far more complex beneath the surface. Equities advanced, bonds recovered, oil prices retreated, and semiconductor stocks surged back toward record highs after the interim US-Iran agreement offered markets their clearest signal yet that the Strait of Hormuz could reopen. An inflation risk that had dominated macro discussions suddenly looked less like an imminent shock and more like a pressure point beginning to ease.
That shift matters. Lower crude prices have given parts of the equity market much-needed breathing room following the Fed’s latest message. They have also offered support to longer-duration assets after policymakers signaled they are prepared to respond forcefully should inflation pressures re-emerge. While cheaper energy does not solve every macro challenge, it removes one of the most visible drivers of inflation expectations.
The market is correctly focusing on oil. Reopening Hormuz does more than restore disrupted supply—it unlocks a significant backlog of Gulf crude destined for Asia. More than 60 million barrels reportedly remain stored on tankers in the region, waiting for transport routes to normalize. Once confidence returns and those cargoes begin moving, Asian buyers may face not only additional supply but a delayed surge of barrels entering a market that has already adapted by securing alternative shipments from West Africa, the Americas, and other exporters.
As a result, the oil market may be transitioning rapidly from a scarcity narrative to an oversupply narrative. The immediate concern was whether crude could leave the Gulf. The next challenge is how quickly delayed cargoes arrive in a market that is already relatively well stocked. This dynamic suggests the decline in oil prices may have further room to run, as the reopening of Hormuz removes both the geopolitical risk premium and exposes the inventory buildup created during the disruption.
That is why developments in the Dubai crude market are attracting attention. The shift of Dubai prompt time spreads into contango is more than a technical detail—it may be an early sign that the last remnants of the geopolitical premium are fading. Contango indicates that immediate barrels are becoming less valuable relative to future supply, suggesting traders are beginning to worry less about securing cargoes and more about finding storage for them. This subtle change in market structure often signals a transition from supply anxiety toward concerns about excess inventory.
For Asian refiners, the market is entering a new phase. The original shock came from the loss of Gulf crude supplies. The next challenge may be the opposite: a surge of delayed Gulf barrels arriving simultaneously into a region that has already secured alternative supplies. For months, oil traders focused on the closure of the gate; now they must assess the growing traffic jam waiting on the other side, particularly around Singapore’s storage and trading hub.
Meanwhile, equity markets have reverted to a familiar script. The Nasdaq is outperforming, semiconductor stocks are leading the advance, and renewed optimism surrounding domestic chip production has added fresh momentum to the broader AI and capital-expenditure story. Retail stocks remain resilient, energy shares have softened alongside crude prices, and investors are once again embracing growth-oriented sectors as concerns over energy-driven inflation begin to fade.
However, the post-Fed recovery remains narrow beneath the surface. While technology and semiconductors have resumed leadership, broader market participation remains limited. Cross-asset signals from currencies, rates, and volatility markets suggest caution rather than a full-fledged risk-on environment. The generals may be charging ahead, but the rest of the market has yet to follow, making the rally appear selective rather than comprehensive.
That distinction is important because the Fed did more than leave rates unchanged—it reshaped the market’s expectations. The latest dot plot revealed that nine policymakers now support additional rate hikes this year, strengthening the US dollar and forcing investors to consider a scenario in which the Fed’s next move could be another hike rather than an extended pause. Even if further tightening is not the base case, its inclusion in the discussion changes the complexion of every risk asset rally.
Lower oil prices help ease inflation concerns, but a stronger dollar can still tighten financial conditions. Gold finds itself caught between these opposing forces. While the metal has stabilized above $4,200 as the initial shock from the Fed fades, currency markets continue to favor the dollar. The message remains clear: traders are still responding to the Fed’s tougher stance, and gold remains constrained by expectations of higher real rates and a Dollar Index trading back above the psychologically important 100 level.
For gold investors, the peace dividend and the Fed’s hawkish turn are working against one another. Falling energy prices reduce inflation pressure and should support a less restrictive policy outlook. Yet the Fed’s latest communication suggests policymakers remain concerned enough about inflation to maintain a cautious stance. This tension now sits at the center of the market debate. If Hormuz fully normalizes, Gulf exports recover, and oil prices continue to soften, the Fed’s current inflation concerns may begin to look increasingly outdated. The key question is whether declining energy costs can cool inflation expectations quickly enough to make recent hawkish repricing appear excessive, especially if consumer demand weakens later in the year.
This is the central fault line for markets. Investors are not debating whether lower oil is positive—it clearly is. The debate is whether it merely softens the Fed’s inflation challenge or fundamentally shifts the policy outlook back toward patience.
Another factor entering the equation is June options expiration, which is removing a subtle but important source of market stability. Recent gains have benefited from heavy call-option positioning, a dynamic that suppressed volatility and encouraged frequent intraday reversals. Dealer hedging acted as an invisible cushion beneath the market, but much of that support is now fading just as investors attempt to determine whether cheaper oil can offset a more hawkish Fed.
The S&P 500’s position below 7,500 is particularly important from a positioning perspective. Above major option strike concentrations, dealer hedging tends to dampen volatility by encouraging purchases during declines and sales during rallies. Below 7,500, that stabilizing effect begins to weaken.
With negative gamma extending toward 7,350, dealer hedging can start amplifying market moves instead of smoothing them. In that environment, declines may trigger additional selling from dealers seeking to maintain hedges, potentially accelerating downside momentum. This does not imply a market crash; rather, it suggests a greater sensitivity to directional flows and reduced resilience during periods of selling pressure.
The June expiration itself is not necessarily bearish. The removal of substantial call exposure may simply represent a cooling of speculative enthusiasm without damaging the broader trend. Nevertheless, once that call-heavy structure disappears, equities lose part of the mechanical support that has helped keep volatility subdued. Combined with a hawkish Fed and mixed cross-asset signals, the margin for error becomes increasingly narrow.
In practical terms, traders should expect a market with fewer shock absorbers. The derivatives landscape is becoming less supportive at the same time that the macro backdrop grows more complex. Oil is falling and the Strait of Hormuz is reopening—both constructive developments. Yet the Fed remains focused on inflation risks, and the dollar continues to reflect that reality. The key question is whether the peace dividend can cool inflation quickly enough to soften the Fed’s tougher stance.
For now, equities are voting yes. Technology leadership has returned, bonds have stabilized, and lower oil prices are removing one of the market’s most visible inflation threats. Yet this is not the classic Goldilocks environment. Investors are attempting to balance the benefits of cheaper energy against a central bank that appears increasingly willing to tighten policy if inflation resurges. As Hormuz reopens, one support mechanism is returning to markets while another—options-related protection—is quietly fading away.
From a trading perspective, the timing now becomes critical. The first 24 to 48 hours after a hawkish Fed surprise are rarely the ideal moment to fade the dollar or challenge the central bank’s message. Gold and major currencies have already suffered a significant repricing as investors adjusted to the Fed’s revised outlook. The more interesting question comes afterward: can weaker oil prices gradually undermine the inflation narrative that fueled the dollar’s rally?
Investors should closely monitor whether gold and major currencies can stage a meaningful recovery once the initial hawkish positioning has cleared. A sustained decline in oil prices, a softer Dubai crude structure, and a steady return of Gulf exports to Asia would not automatically force the Fed to change course. However, these developments could make the market’s most aggressive tightening expectations appear less convincing, especially if inflation begins to cool more rapidly than anticipated.
Ultimately, the market is caught between two powerful forces. The peace dividend is supporting equities, bonds, and lower energy prices, while the Fed’s tougher tone continues to bolster the dollar and weigh on gold. The next major move will depend on whether the reopening of Hormuz and the release of trapped Gulf supply can cool inflation quickly enough to reduce pressure for tighter monetary policy.
For now, traders remain suspended between relief and restraint—and that is often where the most compelling opportunities emerge.
Crude oil prices continued their sharp decline on Thursday, with West Texas Intermediate (WTI) dropping nearly 3% to around $74.52 per barrel and Brent crude losing 2.7% to trade near $77.40. Both benchmarks fell to their lowest levels since early March as markets reacted to the newly signed US-Iran peace agreement and the partial reopening of the Strait of Hormuz. These developments have significantly reduced the geopolitical risk premium that had supported oil prices for months, reversing one of the largest supply-driven rallies in recent years. As tanker traffic resumes through the world’s most critical oil transit route, downward pressure on crude prices remains dominant.
The magnitude of the pullback has been remarkable. Since reaching a four-month peak in April, oil prices have fallen by roughly 38%. At the height of the US-Iran conflict, the effective closure of the Strait of Hormuz disrupted a substantial portion of global seaborne oil flows, driving Brent crude to levels not seen since the 2022 energy crisis. More than 11 million barrels per day of Middle Eastern production were temporarily removed from the market, inventories tightened sharply, and prices surged into triple-digit territory. With the ceasefire now in place and shipping activity gradually returning, traders are rapidly adjusting expectations to reflect the prospect of recovering supply.
However, the outlook remains far from straightforward. Global inventories are still under pressure after months of heavy drawdowns, and restoring Iranian and regional oil production could take considerably longer than current market pricing suggests. In addition, uncertainty surrounding the ceasefire persists, as unresolved nuclear negotiations and warnings from President Trump about potential renewed military action continue to pose risks. As US markets head into the Juneteenth holiday closure, crude oil finds itself caught between two opposing forces: the bearish impact of reopening supply routes and the supportive influence of tight inventories and lingering geopolitical uncertainty. The key question is whether returning production will outweigh supply tightness, or whether a slower recovery process will help stabilize prices before any meaningful surplus emerges.
Current Oil Market Levels: WTI, Brent, and the 38% Retreat From April Peaks
Recent price action underscores the scale of the oil market’s reversal. On Thursday, West Texas Intermediate (WTI) slipped nearly 3% to approximately $74.52 per barrel, while Brent crude declined around 2.7% to $77.40. Both benchmarks reached their lowest levels since early March, extending losses as optimism surrounding the US-Iran peace agreement strengthened throughout the week. At the same time, the premium between Brent and WTI has narrowed from the elevated levels recorded during the peak of shipping disruptions.
The sharp decline illustrates the unwinding of a substantial geopolitical risk premium. During the height of the conflict, when the Strait of Hormuz was effectively closed and more than 11 million barrels per day of Middle Eastern production were offline, Brent surged into triple-digit territory, reaching its highest levels since the 2022 energy crisis. WTI also rallied dramatically, climbing from below $60 earlier in the year to nearly $100. April marked the peak of that fear-driven advance. Since then, expectations of a diplomatic resolution have steadily gained traction, triggering a roughly 38% correction as the market reassesses the likelihood of supply returning.
The speed of the selloff highlights how heavily oil prices had become dependent on geopolitical concerns rather than underlying supply-and-demand fundamentals. Once traders began pricing in the restoration of disrupted barrels, the risk premium rapidly evaporated. With crude now trading at three-month lows and even below levels seen before the conflict’s most severe phase, market participants are evaluating how much downside remains. The answer will largely depend on whether returning supply outweighs the ongoing effects of historically tight inventories. As a result, both WTI and Brent are attempting to establish a new equilibrium in a post-conflict environment, a process likely to remain volatile as developments surrounding Hormuz and regional production recovery continue to unfold.
The Agreement That Triggered the Selloff
The primary catalyst behind oil’s sharp decline has been the interim peace agreement signed by President Trump and Iran’s leadership, aimed at ending months of hostilities in the Middle East. According to US officials, the memorandum of understanding is already in effect and extends the current ceasefire while creating a framework for reopening the Strait of Hormuz and ending the US naval blockade. Under the arrangement, Iran will permit vessels to transit the waterway without fees for 60 days, while the United States begins lifting restrictions, with the broader objective of fully restoring maritime traffic and easing sanctions on Iranian oil exports.
The deal marks a major shift after months of severe disruption. Since the conflict erupted in late February, oil flows through one of the world’s most critical energy corridors had been heavily constrained. The prolonged closure of Hormuz forced Gulf producers to curtail output as storage capacity tightened and export routes became inaccessible. By facilitating the reopening of the strait, the agreement paves the way for suspended production and exports to gradually return to the market.
Investors have responded by aggressively removing the geopolitical premium embedded in crude prices. As confidence grows that oil shipments can once again move freely through Hormuz, fears of prolonged supply shortages are fading. Although the agreement remains temporary and key issues—particularly negotiations surrounding Iran’s nuclear program—have yet to be resolved, the reopening of the strait has convinced many traders that the most severe phase of the supply disruption has passed. That shift in sentiment has fueled the rapid decline that has pushed oil prices to their lowest levels in three months.
Hormuz Reopens: Shipping Flows Signal a Return of Supply
One of the clearest signs of easing tensions in the Middle East is the revival of maritime traffic through the Strait of Hormuz. Government officials reported that more than 12 million barrels of crude oil have already passed through the waterway, marking the highest volume since the conflict began. They also noted that Iran has refrained from targeting commercial vessels for several consecutive days, adhering to the terms of the ceasefire agreement. Saudi crude tankers, LNG carriers, and fuel shipments have resumed departures from Gulf ports, providing tangible evidence that the reopening is progressing beyond diplomatic commitments and into operational reality.
The importance of this development cannot be overstated. Prior to the conflict, the Strait of Hormuz handled roughly 14 million barrels of crude oil per day, along with approximately 6 million barrels of refined petroleum products, making it the world’s most critical energy transit corridor. The prolonged disruption of this route removed a significant portion of global supply from international markets, fueling the sharp rally in oil prices. As traffic gradually normalizes, confidence is growing that those lost volumes will return. Every successful transit through the strait strengthens market belief that the ceasefire is holding and that supply chains are being restored.
The faster-than-expected return of shipping activity has become the primary driver behind this week’s sharp selloff in crude prices. Markets had largely anticipated a prolonged disruption, and the rapid reopening has forced traders to reassess supply expectations. The movement of more than 12 million barrels through the corridor serves as concrete evidence that the bottleneck is easing, while the absence of attacks on commercial shipping reinforces confidence in the agreement. Although risks remain—particularly given the temporary nature of the ceasefire and the 60-day implementation window—the restoration of physical oil flows has emerged as the dominant bearish factor. As long as vessels continue to navigate Hormuz without disruption, pressure on crude prices is likely to persist.
Returning Production: Saudi Arabia, the UAE, and Iraq Prepare to Ramp Up
The reopening of Hormuz also creates a pathway for major Gulf producers to restore output that was suspended during the conflict. Saudi Arabia, the United Arab Emirates, and Iraq collectively curtailed millions of barrels per day as export routes became constrained and storage facilities approached capacity limits. At the peak of the crisis, more than 11 million barrels per day of regional production were effectively removed from the market. Even a partial recovery of these volumes would significantly increase global oil supply.
How quickly this production returns will play a crucial role in determining future price movements. During the closure, producers were forced to either store unsold crude or shut in wells as inventories accumulated. With shipping routes reopening, they can gradually reduce storage levels, resume exports, and reactivate idle production. Some facilities may be able to restart relatively quickly, while others could require additional time before reaching normal operating levels. Given the substantial revenue losses incurred during the disruption, Gulf producers have strong incentives to accelerate the recovery process wherever possible.
The prospect of returning supply remains the central reason behind the market’s bearish repricing. Traders are increasingly factoring in the return of millions of barrels per day that were previously unavailable, shifting expectations from severe scarcity toward the possibility of future oversupply. This helps explain why crude prices have fallen not only from their conflict-driven highs but also below some pre-crisis levels. However, the timing of the recovery remains critical. A rapid production restart would reinforce downward pressure on prices, while a slower-than-expected return could allow tight inventories to provide support. Ultimately, the interaction between recovering supply and depleted stockpiles will shape the next phase of the oil market, making production trends in Saudi Arabia, the UAE, and Iraq key indicators for investors to watch.
How Quickly Can Oil Production Recover?
One of the most important questions facing the oil market is how quickly physical supply can return compared with the pace at which prices have already adjusted. While crude prices have plunged on expectations of renewed supply, industry experts warn that restoring Iranian production and refining operations may take considerably longer than markets currently assume. Damage to infrastructure, the need to clear mines and secure shipping routes around the Strait of Hormuz, and the technical complexity involved in restarting oil fields and refineries all suggest that recovery will likely be gradual rather than immediate.
Most official projections reflect this more measured outlook. Energy analysts generally expect shipping activity through Hormuz to normalize in stages, with tanker traffic gradually increasing and production levels recovering over an extended period. Trade flows and regional output may not fully return to pre-conflict conditions until well into next year. In several Gulf countries, prolonged production shut-ins and operational challenges could further delay the restoration of output. Forecasts vary widely, with some financial institutions expecting a relatively quick recovery in maritime traffic, while others believe the process could take months before reaching full capacity.
The disconnect between market pricing and physical recovery remains a key source of uncertainty. If supply returns more slowly than traders currently anticipate, tight inventories could remain in place longer, providing support for oil prices and potentially triggering periodic rebounds. On the other hand, a faster-than-expected recovery would reinforce the current bearish outlook by accelerating the return of supply to the market. As a result, investors will closely monitor tanker movements, production data, and refinery activity for clues about the pace of normalization. The possibility of a slow recovery remains one of the strongest arguments against an extended decline in crude prices.
Inventory Constraints: Cushing, OECD Stocks, and the Global Drawdown
Despite the bearish implications of reopening supply routes, the oil market continues to face an important counterbalance: exceptionally tight inventories. Months of supply disruptions forced countries and companies to rely heavily on stored crude, resulting in significant stockpile reductions across major consuming regions. At Cushing, Oklahoma—the delivery hub for WTI futures—inventory levels have fallen to roughly 20 million barrels, highlighting the strain placed on available supplies. Recent US data also showed a decline of more than 8 million barrels in crude inventories within a single week, reinforcing evidence of ongoing stock depletion.
The global inventory situation appears even more restrictive. Analysts project that OECD inventories could decline to approximately 50 days of forward demand coverage by year-end, potentially marking the lowest level in more than twenty years. During the second quarter, limited oil flows through Hormuz forced the market to draw heavily from existing stockpiles to satisfy consumption needs. As a result, inventories were depleted at a rapid pace and are unlikely to return to pre-conflict levels anytime soon, even with shipping routes gradually reopening.
These depleted inventories provide a meaningful source of support for oil prices. Before the market can experience a true oversupply, much of the returning production will likely be absorbed by the need to rebuild stockpiles. Thin inventory buffers also leave the market vulnerable to renewed price spikes if any disruptions occur during the recovery process. Consequently, the oil market remains caught between two competing forces: the bearish impact of returning supply and the bullish influence of historically low inventories. While the reopening of Hormuz has triggered a sharp selloff, the need to replenish depleted stocks suggests that the path lower may be uneven, with periods of support emerging as market participants assess the scale of future restocking demand.
The IEA’s Surplus Warning Meets OPEC’s Skepticism
Adding to the bearish outlook for crude oil is the International Energy Agency’s warning that global markets could face a significant supply surplus in the years ahead. According to the agency’s latest projections, oil production is expected to expand substantially while demand growth remains comparatively modest. As shipping activity through the Strait of Hormuz normalizes and Gulf producers restore previously curtailed output, the resulting increase in supply could outpace consumption growth, creating downward pressure on prices.
The implications of this supply-demand imbalance are substantial. A market that only recently grappled with severe shortages could quickly transition into one characterized by abundant supply. The conflict itself has also weakened demand in some regions, as elevated energy costs and economic disruptions weighed on consumption, particularly across Asia, where many economies depend heavily on Middle Eastern oil imports. If demand recovery remains sluggish while production rebounds aggressively, conditions for a sustained oversupply could emerge.
However, not all market participants agree with the IEA’s assessment. OPEC officials and several industry observers have challenged the surplus narrative, arguing that the pace of supply recovery may be slower than anticipated and that depleted inventories will continue to absorb a portion of the returning barrels. The divergence between those expecting a glut and those emphasizing tight stock levels highlights the uncertainty currently facing the market. While the IEA’s warning has contributed to recent price weakness, its realization ultimately depends on supply recovering more rapidly than demand—a scenario that remains far from guaranteed. The debate between surplus risks and inventory-driven support is likely to remain a key driver of oil prices during the second half of the year.
Banks Cut Oil Price Forecasts
The rapid improvement in geopolitical conditions has triggered a broad reassessment among major financial institutions, with most revisions pointing toward lower oil prices. Investment banks that had previously incorporated a prolonged closure of Hormuz into their forecasts have quickly reduced their expectations following the breakthrough in US-Iran negotiations. The return of regional supply and the reopening of a critical shipping corridor have significantly reduced the scarcity premium that previously supported elevated forecasts.
Updated projections now point to Brent crude averaging around $80 per barrel during the fourth quarter, compared with earlier estimates that frequently exceeded $90 per barrel. Several institutions have also lowered their outlooks for the following year. These revised forecasts reflect expectations that tanker traffic through Hormuz will steadily recover over the coming months, easing supply constraints and reducing market tightness. Importantly, the adjustments extend beyond spot prices and have reshaped expectations across the entire forward curve.
The scale of these revisions illustrates how quickly market sentiment has shifted. Only weeks ago, many analysts were raising their forecasts based on assumptions that the disruption in Hormuz would persist through the summer, with some expecting Brent to trade above $100 per barrel for an extended period. The unexpectedly rapid progress toward a ceasefire has rendered those assumptions obsolete. The transition from increasingly bullish forecasts to widespread downgrades underscores the extent to which geopolitical developments have dictated market direction. While the revised outlook favors lower prices in the near term, institutions continue to acknowledge significant risks tied to the durability of the agreement and the pace at which supply ultimately returns.
The Trump Factor: Why Geopolitical Risk Has Not Disappeared
Despite the recent de-escalation, one of the biggest uncertainties facing the oil market remains the fragile nature of the agreement itself. President Trump has repeatedly emphasized that the memorandum should be viewed as an interim arrangement rather than a permanent settlement, warning that military action could resume if Iran fails to meet its commitments. While the agreement extends the ceasefire for 60 days and establishes a framework for broader negotiations, unresolved issues—including discussions surrounding Iran’s nuclear program—continue to pose risks to long-term stability.
Recent market reactions demonstrate how sensitive crude prices remain to geopolitical developments. Earlier in the week, oil prices briefly surged more than 1.5% after comments suggesting that military operations could restart if negotiations deteriorate. This response highlighted that a portion of the geopolitical risk premium remains embedded in the market and can quickly re-emerge whenever tensions escalate. The temporary nature of the agreement ensures that the coming weeks will be heavily influenced by headlines and diplomatic developments.
For oil traders, this remains the primary upside risk to an otherwise bearish narrative. The reopening of Hormuz and the prospect of returning supply support lower prices, but any breakdown in negotiations could rapidly reverse sentiment and trigger a renewed rally. Market participants must therefore balance improving fundamentals against the possibility of renewed conflict—a risk that remains difficult to quantify. As long as the ceasefire remains conditional and negotiations continue, crude prices are likely to remain highly sensitive to developments in US-Iran relations, leaving room for significant volatility despite the broader downward trend.
WTI crude oil trades in a narrow range during Friday’s Asian session as opposing market forces keep prices largely contained. On one hand, uncertainty surrounding the US-Iran peace process intensified after US Vice President JD Vance canceled his planned trip to Switzerland for talks with Iranian officials, lending support to oil prices through renewed geopolitical risk concerns. On the other hand, the resumption of shipping activity through the Strait of Hormuz has eased fears of supply disruptions, limiting further gains in crude and keeping the market in consolidation mode.
West Texas Intermediate (WTI) crude oil remains confined to a narrow trading range during Friday’s Asian session, struggling to build on its rebound from the $72.80 area, the lowest level since early March. Although prices are modestly higher on the day, trading above $75.50, bullish momentum remains limited as traders weigh conflicting fundamental and technical signals.
Geopolitical developments continue to offer some support to the oil market. Uncertainty surrounding US-Iran peace negotiations increased after US Vice President JD Vance canceled his planned visit to Switzerland for talks with Iranian officials. At the same time, renewed Israeli air strikes in Lebanon have raised concerns that the fragile US-Iran agreement could unravel, providing a risk premium for crude prices. However, gains remain capped as shipping activity through the Strait of Hormuz resumes, allowing previously delayed oil cargoes to reach global markets and easing supply concerns.
From a technical standpoint, the recent break below the key $83.00 level—previously the lower boundary of a three-month trading range—strengthened the bearish outlook for WTI. Momentum indicators continue to favor sellers, with the RSI near 32, indicating that the market is approaching oversold conditions but has not yet reached an exhaustion point. Meanwhile, the MACD remains in negative territory, suggesting that downward momentum is still intact.
Despite the bearish bias, crude oil continues to hold above its crucial 200-day Simple Moving Average (SMA) near $72.83. This support level remains a key line in the sand for traders, and a decisive break below it would likely open the door to deeper losses. Until then, buyers may continue to defend price dips, although a stronger recovery would likely require clear improvements in momentum indicators such as the RSI and MACD.
WTI crude prices could come under pressure after the United States and Iran reached a preliminary agreement to end their conflict, reducing concerns over potential supply disruptions.
At the same time, signals from the Federal Reserve pointing to possible interest rate hikes in 2026 have reinforced expectations of tighter monetary conditions, weighing on energy prices.
Adding to the bearish outlook, the International Energy Agency (IEA) projects global oil supply to increase by 8 million barrels per day, significantly exceeding the expected 2 million barrels per day recovery in demand by 2027.
West Texas Intermediate (WTI) crude oil prices are showing a modest recovery during Thursday’s Asian session, trading near $75.10 per barrel after posting losses for five consecutive days. The rebound comes despite easing geopolitical tensions in the Middle East and reduced concerns over potential supply disruptions.
Oil prices remain vulnerable after reports emerged that the United States and Iran have signed a preliminary agreement aimed at ending hostilities. According to the White House, US President Donald Trump and Iranian President Masoud Pezeshkian approved a memorandum of understanding designed to pave the way for a broader peace settlement. The framework follows earlier electronic endorsements by Vice President JD Vance and Iranian Parliamentary Speaker Mohammad Bagher Ghalibaf.
Initial details suggest the agreement establishes a 60-day negotiation period to finalize a comprehensive peace accord. Key provisions include the rapid reopening of the Strait of Hormuz and the immediate removal of significant sanctions on Iranian oil exports. While the deal secures a ceasefire across active conflict zones, discussions surrounding Iran’s nuclear program and long-term economic arrangements are expected to continue in the months ahead.
Meanwhile, the Federal Open Market Committee (FOMC) unanimously decided to keep the federal funds rate unchanged at 3.50%–3.75%. In his first policy meeting as Federal Reserve Chair, Kevin Warsh reaffirmed the central bank’s commitment to bringing inflation under control and restoring price stability.
However, policymakers also indicated growing support for potential rate increases later this year, reinforcing expectations of tighter monetary conditions. The prospect of higher borrowing costs weighed on energy markets, limiting oil’s upside potential.
Adding to the bearish narrative, the International Energy Agency (IEA) warned of a substantial global oil surplus by 2027 in its latest monthly report. As the market adjusts to the normalization of flows through the Strait of Hormuz, the agency expects production growth to significantly outpace demand. Supported by a strong recovery in Gulf exports and expanding non-OPEC+ output, global oil supply is projected to rise by 8 million barrels per day, while demand is expected to increase by only 2 million barrels per day, creating a sizeable supply-demand imbalance that could pressure prices over the longer term.
After more than three months of conflict that triggered a major shock across global energy markets, the United States and Iran have agreed to a peace settlement. Financial markets reacted exactly as expected: oil prices tumbled, government bond yields declined, and risk-sensitive assets rallied sharply as investors welcomed the easing of geopolitical tensions.
The key issue for investors now is not the announcement itself, but what follows: whether the agreement can endure and how portfolios should be positioned in a scenario where one of the most significant geopolitical risks of 2026 is being eliminated rather than materializing.
1. The Agreement: Current Situation and Next Steps
What has happened? Following approximately 107 days of conflict—sparked by U.S. and Israeli strikes on Iran in late February and intensified by Iran’s closure of the Strait of Hormuz in early March—the United States and Iran announced over the weekend that they had reached a peace agreement. The talks were mediated by Pakistan and Qatar, with support from Saudi Arabia and Turkey. According to Pakistan’s prime minister, both sides have committed to an immediate and permanent cessation of military operations across all fronts, including Lebanon.
President Trump described the agreement as “complete” and authorized the reopening of the Strait of Hormuz without restrictions, along with the lifting of the U.S. naval blockade. The deal is currently framed as a memorandum of understanding and is scheduled to be formally signed in Switzerland on June 19.
However, implementation remains conditional. Tehran has stated that it will not begin carrying out the agreement until the signing takes place. Moreover, negotiations on a comprehensive final settlement will be postponed to a 60-day second phase, which will begin only after the United States has clearly fulfilled its initial commitments—including ending military actions, removing the blockade, reopening Hormuz, and releasing frozen Iranian assets.
Importantly, the most sensitive and complex issue—the future of Iran’s nuclear program—has been deferred to these follow-up negotiations, leaving a major source of uncertainty still unresolved.
Why Both Sides Are Motivated to Make the Deal Succeed
The incentives for both Washington and Tehran to preserve the agreement are unusually strong and closely aligned.
For the U.S. administration, the political stakes are significant. Approval ratings remain near historic lows, while prediction markets increasingly suggest the possibility of losing control of the House and facing greater challenges in the Senate during the upcoming midterm elections. Meanwhile, the recent energy shock has pushed headline inflation to 4.2%, creating additional pressure on policymakers. Lower oil prices, reduced inflation concerns, and the ability to claim a diplomatic breakthrough where previous efforts failed would provide a valuable political boost.
Iran also has compelling reasons to support the agreement. The U.S. naval blockade has severely constrained Iranian oil exports and placed substantial strain on the broader economy. Securing sanctions relief, regaining access to frozen assets, and ending the blockade are critical economic priorities. After enduring a costly and damaging conflict, Tehran likewise has a strong incentive to reduce tensions and stabilize the situation.
The involvement of highly committed mediators—including Pakistan, Qatar, Saudi Arabia, and Turkey—further strengthens the case for de-escalation. With multiple regional actors invested in the process, the path toward cooperation currently appears more attractive than renewed confrontation.
What Could Still Cause the Deal to Fail
Despite the optimism, investors should not consider the agreement fully secured until it is formally signed and, more importantly, implemented. Several risks remain.
Israel’s role. Israel is not a party to the agreement, making it the most immediate source of uncertainty. Reports of Israeli operations in Lebanon are already testing a deal that explicitly calls for ending hostilities on all fronts, including Lebanon. Continued military actions by a non-signatory could undermine the broader ceasefire framework.
Sequencing and trust issues. The agreement requires the United States to fulfill key commitments before Iran proceeds with implementation. While this structure provides safeguards for Tehran, it also creates opportunities for delays, disputes over compliance, and potential breakdowns during the planned 60-day negotiation period.
Domestic opposition. Political hardliners in Iran and hawkish factions in Washington may view compromise as unacceptable and could attempt to obstruct the process through political pressure or other means.
The unresolved nuclear question. The most difficult issues—such as uranium enrichment levels, verification mechanisms, and nuclear stockpile limits—have merely been postponed. These topics remain central to any lasting settlement and could become major obstacles in future negotiations.
Implementation risk. Iran has stated that it will not begin implementing the agreement before the scheduled signing on Friday, and many details remain undisclosed. As a result, the period between the announcement and the formal signing remains vulnerable to unexpected developments and market volatility.
What Happens Next?
Several key milestones lie ahead:
Preparatory discussions in Doha.
Electronic approval of the agreement by both parties.
The formal signing ceremony in Switzerland on June 19.
U.S. implementation of its initial commitments.
The launch of a 60-day technical negotiation process aimed at reaching a permanent agreement.
Each of these stages will be closely monitored by investors, and markets are likely to react to progress—or setbacks—at every step along the way.
2. Market Conditions: Slowing, Not Cracking
The peace agreement arrives at a time when financial markets were already showing considerable resilience. Even during the conflict, our central expectation was that the global economy would avoid both stagflation and recession. In our view, the critical factor for equity markets was not the existence of the war itself, but rather how long it would persist.
As a result, the recent de-escalation removes one of the major sources of uncertainty that had been weighing on investor sentiment. Instead of facing a prolonged geopolitical crisis with the potential to disrupt growth and inflation dynamics, markets now have greater clarity and a more supportive environment for risk assets.
In essence, the economy was already demonstrating signs of moderation rather than deterioration. A lasting peace agreement reinforces that outlook by reducing energy-related risks, easing inflationary pressures, and lowering the probability of a negative macroeconomic shock. For investors, the key takeaway is that the market backdrop remains one of cooling growth and inflation—not economic breakdown—and the resolution of the conflict strengthens that narrative.
The Bull Market Remains Healthy and Is Expanding
The long-term upward trend in U.S. equities continues to hold, with market leadership broadening in a constructive and sustainable manner. Rather than being driven by a small group of mega-cap stocks, gains are increasingly being shared across a wider range of companies and sectors.
Small- and mid-cap stocks have emerged as the strongest performers this year. The S&P SmallCap 600 has gained 18.7% year-to-date, closely followed by the Russell 2000 at 18.4% and the S&P MidCap 400 at 14.7%. These returns comfortably exceed those of the S&P 500 (8.6%) and the Russell 1000 (8.5%), while the Nasdaq 100 has also maintained strong momentum with a 17.0% gain.
Market breadth further supports the positive outlook. Approximately two-thirds of listed stocks are currently trading above their 200-day moving averages, indicating that participation in the rally is widespread rather than concentrated in a handful of names.
Taken together, these trends suggest a bull market that is evolving and becoming more inclusive, not one that is losing momentum. Broadening leadership and strong market breadth are typically characteristics of a mature but still healthy expansion phase, rather than signs of an approaching market peak.
Technology Is Consolidating, Not Reversing
The recent weakness in the technology sector should be viewed as a pause within an ongoing uptrend rather than the beginning of a broader downturn. Semiconductor stocks, which had experienced an exceptionally strong and almost parabolic advance, underwent a correction of roughly 12% before recovering part of those losses.
Importantly, this pullback appears to have been driven largely by profit-taking and position rebalancing rather than any meaningful deterioration in underlying business fundamentals. The key drivers supporting the sector remain firmly in place.
Spending by major cloud providers and hyperscalers continues to accelerate as they invest heavily in artificial intelligence infrastructure. At the same time, AI adoption across industries is still expanding, reinforcing the long-term growth outlook for the technology ecosystem.
Another notable development is the outperformance of the equal-weighted S&P 500 relative to its market-cap-weighted counterpart. This suggests that investor interest is broadening beyond a handful of large technology companies and spreading to a wider range of stocks across the market.
In other words, capital is rotating into the “average” stock rather than leaving equities altogether. Such a shift is generally considered healthy, as it reflects improving market breadth and a more balanced bull market rather than a loss of confidence in technology or growth assets.
IPO Enthusiasm Is the Ultimate Gauge of Investor Risk Appetite
The current surge in IPO activity is providing one of the clearest indications of investor confidence and willingness to take risk. The recent debut of SpaceX serves as a striking example. The stock rose approximately 18–19% on its first trading day, while the offering raised around $75 billion—making it the largest IPO in history. Despite having less than 5% of its shares available for public trading and carrying a valuation of roughly $2.1 trillion, equivalent to more than 100 times trailing revenue, investor demand was exceptionally strong, attracting record levels of retail participation on its opening day.
This successful listing could mark the beginning of a new wave of mega-IPOs. Market participants are already speculating that companies such as OpenAI and Anthropic may eventually follow with public offerings of their own.
The broader implications are significant. For the first time in more than two decades, net equity supply in the U.S. market could become positive. Large technology companies are increasingly raising capital to finance massive AI infrastructure investments, while a growing pipeline of high-profile IPOs introduces substantial new share supply into the market.
Historically, however, such issuance waves have not necessarily been negative for equities. Research from Deutsche Bank suggests that periods of heavy stock issuance tend to coincide with strong market environments rather than precede major downturns. On average, markets generated returns of roughly 8% over the following three months and about 20% over the subsequent year after previous issuance surges, with the 2008 financial crisis standing out as a notable exception.
At present, investor demand appears strong enough to absorb the increase in supply. As long as capital continues flowing into equities and risk appetite remains elevated, the growing number of new listings is more likely to be interpreted as a sign of market strength than a warning signal.
The Federal Reserve Can Afford to Wait
The Federal Reserve currently has little reason to rush into further policy tightening. While headline inflation has climbed to 4.2%, its highest level since early 2023, the increase is largely attributable to higher energy prices rather than broad-based inflationary pressures across the economy.
Underlying inflation trends remain considerably more moderate. Core CPI, which excludes volatile food and energy components, rose just 2.9% and came in slightly below expectations. Goods prices recorded their first annual decline in a year, while services inflation has shown little evidence of a renewed acceleration. Together, these indicators suggest that inflation pressures outside the energy sector remain relatively contained.
As a result, the most likely policy path is an extended period of patience from the Fed. Policymakers may remove any remaining signals that rate cuts are imminent, but they are unlikely to respond aggressively to inflation that is primarily driven by temporary energy-market developments.
Looking ahead, oil prices remain the critical variable. If the ceasefire between the United States and Iran holds and crude prices continue to decline, headline inflation should gradually ease, reducing pressure on the Fed and potentially delaying any discussion of additional rate hikes. In such a scenario, the possibility of future rate cuts could eventually return to the conversation.
Conversely, if tensions re-emerge and oil prices surge again—pushing headline inflation above roughly 4.5%—the prospect of renewed monetary tightening would become much more realistic.
Even before the peace agreement, market expectations for further rate increases had already begun to fade. Economic growth remained resilient, core inflation was moderating, and WTI crude oil had fallen below $85 per barrel, reducing concerns about persistent inflation. A durable peace deal strengthens these trends and shifts the outlook more decisively toward a favorable combination of stable growth, easing inflation, and a patient Federal Reserve.
Hormuz Reopened? Why Declaring Victory on Oil May Be Premature
Before investors rush to conclude that the oil crisis is over, there are two important realities that deserve closer attention.
1. A Reopening Is Not the Same as a Resolution
The first issue is straightforward: there is still no finalized agreement.
While negotiations between the United States and Iran appear to be progressing, a formal deal has not yet been signed or implemented. Markets are increasingly pricing in a successful outcome, but that outcome remains an expectation rather than an established fact.
As a result, confidence in the reopening of the Strait of Hormuz is largely based on optimism about what will happen next, not on a completed and tested agreement. Every tanker passing through the strait is effectively relying on the assumption that the diplomatic process remains on track.
In other words, Hormuz is reopening because market participants believe the conflict is ending—not because the conflict has definitively ended. That distinction matters, particularly in a region where political developments can change rapidly.
2. Reopening Shipping Routes Does Not Instantly Restore Supply
Even if a peace agreement is signed, the return to normal market conditions will take time.
The release of roughly 300 vessels that have been delayed by the blockade may seem substantial, but that number represents less than two days of normal pre-war traffic through the strait. In addition, hundreds of other ships remain queued for loading and unloading operations.
Before the conflict, approximately 150 vessels moved through Hormuz each day. During the crisis, traffic fell dramatically, in some cases approaching a standstill. Restoring those logistics networks, clearing backlogs, repositioning tankers, and normalizing shipping schedules cannot happen overnight.
A reopening is a single event. A full recovery of global energy flows is a gradual process that could take months.
A Shrinking Margin for Error
The broader energy backdrop also remains less comfortable than recent market reactions suggest.
For several months, global energy markets have operated under significant strain. The situation remained manageable partly because the disruption occurred when supply conditions were relatively favorable and inventories were still increasing. However, global oil reserves have since fallen toward some of their lowest levels in decades.
That means the buffer that previously protected markets from severe shortages has become considerably thinner. Investors are being asked to assume that the worst is over at precisely the moment when reserve cushions are no longer as reassuring as they once were.
The Strategic Reality Has Changed
Perhaps the most important lesson extends beyond this particular crisis.
Iran has demonstrated that it possesses the ability to create significant disruptions in the global economy through its influence over a single strategic chokepoint: the Strait of Hormuz.
Even if the current blockade ends and diplomatic relations improve, that underlying reality remains unchanged. Markets, governments, and energy consumers now have direct evidence of how vulnerable global supply chains can be to disruptions in the region.
The blockade itself may prove temporary. The strategic leverage it revealed is not.
For that reason, the recent collapse in oil prices may be justified by improving short-term prospects, but it does not necessarily mean that geopolitical risk has disappeared from the energy market. Instead, investors may be moving from a period of acute crisis to one of lingering structural uncertainty.
3. Portfolio Positioning and the Immediate Beneficiaries of a Peace Agreement
Our Long-Term Framework Remains Unchanged
Our strategic asset allocation continues to be guided by a durable, all-weather investment framework. At its core is a significant allocation to U.S. equities, reflecting our belief in the continued strength of the U.S. economy and corporate sector. We also maintain meaningful exposure to technology, a substantial allocation to alternatives—particularly hedge funds—a diversified fixed-income portfolio, and partially hedged currency exposure.
The recent geopolitical developments do not alter this long-term investment compass.
Current Tactical Positioning
Since May 21, 2026, our tactical stance has been moderately overweight equities. Market appreciation has naturally increased that overweight over time, while regional allocations remain broadly neutral. U.S. equity exposure has risen slightly through market drift rather than active allocation changes.
At the same time, we remain underweight fixed income overall, particularly government bonds. Within alternatives, we continue to hold overweight positions in commodities and gold while maintaining a neutral stance toward hedge funds. In foreign exchange markets, our positioning remains broadly neutral toward the U.S. dollar.
The central theme connecting these positions is our belief that markets are experiencing a transition rather than a deterioration. Leadership is gradually broadening beyond a narrow group of mega-cap technology stocks toward cyclical sectors, value-oriented companies, and smaller-cap equities. Volatility is normalizing, momentum-driven investing is moderating, and market performance is increasingly supported by resilient economic growth and expectations for approximately 21% second-quarter earnings growth.
Accordingly, we remain constructive on equities and continue to view market pullbacks as opportunities rather than threats.
At the same time, we remain cautious about excessive enthusiasm surrounding highly publicized IPOs. Historical evidence suggests that many of the largest IPOs struggle after their initial excitement fades. Among the 30 largest IPOs in the Russell 3000 over the past two decades, the median one-year return was approximately negative 31%, while the median maximum drawdown reached roughly 53%.
Positioning for the Next Phase of the Market Cycle
Where a Peace Deal Has the Greatest Impact
A successful agreement between the United States and Iran would remove a major geopolitical risk that could otherwise have complicated the Federal Reserve’s policy path. More importantly, it reinforces our existing investment thesis rather than forcing us to change it.
The most immediate beneficiaries would likely be assets tied to lower energy prices and a declining geopolitical risk premium.
International Developed-Market Value Stocks
In our view, developed-market value equities outside the United States represent the clearest beneficiary.
A fully functioning Strait of Hormuz and lower oil prices would reduce energy costs for economies such as Japan and countries across Europe, where value and cyclical sectors make up a larger share of the market. These regions would likely experience some of the most direct economic benefits from cheaper energy.
Cyclicals, Mid-Caps, and Equal-Weight Strategies
The broadening market leadership already underway could accelerate in a lower-oil, risk-on environment.
Industries such as transportation, airlines, industrials, and consumer businesses with significant energy exposure would benefit directly from lower fuel costs. U.S. mid-cap stocks and equal-weight equity strategies could also outperform as investors continue moving beyond a narrow set of mega-cap winners.
Bonds and Rate-Sensitive Equities
Falling oil prices would help reduce headline inflation, reinforcing expectations that the Federal Reserve can remain patient.
This environment would generally support fixed-income assets and interest-rate-sensitive sectors such as real estate and utilities. We would expect intermediate-duration bonds to benefit more than long-duration bonds if economic growth remains healthy.
Currencies
In a risk-friendly environment characterized by lower oil prices and a softer U.S. dollar, cyclical and emerging-market currencies typically perform well.
Conversely, currencies tied closely to energy exports may face headwinds as oil prices decline.
The Trade-Off Within Our Current Portfolio
A successful peace agreement also creates a challenge for two of our existing overweight positions.
Both commodities and gold have benefited from elevated geopolitical uncertainty. Lower oil prices and a shrinking geopolitical risk premium would likely create short-term pressure on commodities, while a stronger risk appetite environment tends to reduce demand for gold as a safe-haven asset.
Nevertheless, we do not view these developments as a reason to abandon either position.
Our allocations to gold and commodities are designed as long-term portfolio stabilizers rather than short-term tactical trades. Gold, in particular, continues to provide diversification benefits in a world characterized by elevated government debt levels and interest rates that may remain higher for longer than investors expect.
Instead of abandoning these positions, we see the greater opportunity in gradually shifting incremental capital toward developed-market value stocks and cyclical equities, which stand to benefit most from a sustained de-escalation of geopolitical tensions.
Bottom Line
We remain positive on equities and view a successful peace agreement as confirmation of our existing outlook rather than a reason to aggressively chase markets higher.
Our strategic framework remains unchanged. Tactically, however, we would look to increase exposure to areas where market leadership is broadening—particularly international developed-market value stocks, cyclical sectors, and diversified equity exposure—especially during periods of market volatility.
Gold and commodities should continue to serve as portfolio ballast rather than primary return drivers, while participation in the growing wave of mega-IPOs should be based on fundamentals, valuation, and portfolio fit rather than headline excitement.
Ultimately, the greatest threat to this outlook is not the market itself but the possibility that the peace process fails during implementation. For that reason, each milestone in the agreement’s execution will remain a critical signal for both markets and portfolio positioning.
Oil prices tumbled to around $79.50 per barrel after U.S. President Donald Trump announced that the Strait of Hormuz would be reopened as part of a peace agreement with Iran. Iran stated that shipping traffic through the strategic waterway would resume within 30 days under its own arrangements, easing concerns over global supply disruptions. However, despite the reopening plans, oil supplies may remain constrained in the near term due to extensive damage to energy infrastructure across the Middle East caused by the conflict.
West Texas Intermediate (WTI) crude oil futures traded more than 4% lower, hovering around $79.50 per barrel during Monday’s European session. The sharp decline followed U.S. President Donald Trump’s announcement that the Strait of Hormuz—a key route for nearly 20% of global energy shipments—would reopen after the United States and Iran reached a memorandum of understanding (MoU), scheduled to be formally signed in Switzerland on June 19.
In a post on Truth Social on Sunday, President Trump stated that he had authorized the toll-free reopening of the Strait of Hormuz and ordered the immediate removal of the U.S. naval blockade.
Despite the announcement, Iran’s Mehr News Agency reported that shipping through the strait would resume within 30 days under Iranian supervision. Likewise, according to Seatrade Maritime News, the U.S. blockade on Iran is also expected to be lifted within the same timeframe.
Oil prices had surged earlier in the conflict after Iran closed the Strait of Hormuz and sought international recognition of Tehran’s authority over the strategic waterway. While the latest agreement has eased immediate supply concerns and triggered a sharp correction in prices, analysts remain cautious about the potential for further declines.
Market participants note that extensive damage to Middle Eastern energy infrastructure caused by the conflict between the U.S.-Israel alliance and Iran could continue to support crude prices. Analysts at ANZ suggested that oil could temporarily fall below $80 amid optimism surrounding the deal, but warned that prices may remain elevated if the agreement proves less favorable than expected and infrastructure disruptions continue to constrain supply.
WTI Technical Analysis
WTI crude oil is trading weaker near $79.50 at the time of writing, maintaining a bearish short-term outlook as it remains firmly below the 20-day Exponential Moving Average (EMA) at $89.44. This highlights ongoing selling pressure and a strong supply overhang following the recent decline.
The Relative Strength Index (RSI) has fallen to 34.84, indicating that bearish momentum remains dominant and could strengthen further in the near term.
On the upside, the 20-day EMA at $89.44 serves as the first key resistance level. A sustained move above this barrier would be required to reduce downside pressure and pave the way for a broader corrective recovery. On the downside, a break below the April 17 low of $78.88 could expose the March 10 low at $75.95. Additional support levels are located around $70.00 and the February 27 high at $67.74, which corresponds to the pre-war price level.
Silver prices retreat as renewed military tensions in the Middle East weigh on the recent wave of diplomatic optimism.
US forces reportedly intercepted and destroyed two Iranian attack drones aimed at commercial vessels near the Strait of Hormuz. Meanwhile, President Trump indicated that a peace agreement with Iran could be reached over the weekend after calling off planned US strikes on Iranian energy facilities.
Silver prices (XAG/USD) retreat during Friday’s Asian session after surging more than 6% in the previous trading day, with the metal hovering near $67.00 per troy ounce. The pullback comes as renewed military tensions in the Middle East undermine the recent improvement in diplomatic sentiment.
According to Fox News, US forces intercepted and destroyed two Iranian one-way attack drones near the strategically vital Strait of Hormuz after the aircraft allegedly targeted commercial ships. Meanwhile, Iranian state media said the explosion noises reported in Sirik were linked to an encounter with a vessel accused of violating regional maritime restrictions. Tehran claimed the Islamic Revolutionary Guard Corps (IRGC) warned an oil tanker and compelled it to follow the imposed traffic controls.
Even so, hopes for a diplomatic breakthrough remain alive. US President Donald Trump stated that a broad peace agreement with Iran could potentially be completed as soon as this weekend, marking a notable change after he suspended planned US military action against Iranian energy facilities. Although the agreement still awaits formal approval from both sides, Iran’s semi-official Fars news agency suggested Tehran is expected to endorse the proposal. Trump added that the deal would focus on reopening shipping routes through the Strait of Hormuz and securing firm Iranian commitments to halt its nuclear weapons ambitions.
At the same time, geopolitical instability continues to influence global monetary policy and reinforce hawkish central bank expectations. On Thursday, the European Central Bank (ECB) delivered its first interest rate increase since 2023 and revised its inflation outlook higher for both 2026 and 2027. In the United States, producer prices climbed 6.5% year-over-year in May, highlighting persistent inflationary pressure tied to Middle East-related energy disruptions. The data further strengthened market expectations that the Federal Reserve (Fed) could raise interest rates again later this year.
USD/CAD ticks lower on Thursday but struggles to extend its decline as traders navigate a mix of conflicting market signals. Stronger crude oil prices continue to support the Canadian Dollar, while a slight pullback in the US Dollar helps limit the pair’s upside. However, ongoing geopolitical uncertainties and contrasting monetary policy outlooks between the Federal Reserve and the Bank of Canada provide underlying support to USD/CAD.
The USD/CAD pair is struggling to build on its rebound from the 1.3900 area, a level that marked this week’s low, and is edging lower during Thursday’s Asian trading session. Despite the pullback, the pair remains close to Tuesday’s year-to-date peak, hovering just below the mid-1.3900s and posting a modest daily loss of less than 0.10% as investors weigh conflicting market drivers.
The Canadian Dollar finds support from rising crude oil prices after Iran announced the closure of the Strait of Hormuz in response to a new wave of US military strikes ordered by President Donald Trump. The geopolitical escalation has helped oil recover from Tuesday’s near two-month low, strengthening the commodity-linked Loonie. A softer US Dollar is also contributing to downside pressure on USD/CAD.
At the same time, escalating tensions between Washington and Tehran continue to underpin demand for the US Dollar as a safe-haven asset. Iran’s joint military command has vowed a “decisive and crushing” response to any US aggression in the region, heightening concerns over a broader conflict. Additionally, the surge in energy prices is reinforcing inflation fears and supporting expectations that the US Federal Reserve could maintain a more hawkish policy stance.
Market participants are now pricing in more than a 70% probability of a Fed rate increase before year-end, according to CME FedWatch data. Those expectations gained momentum after US inflation data showed the Consumer Price Index rising 4.2% year-over-year in May, the highest reading in three years. In contrast, the Bank of Canada remains relatively dovish, with policymakers placing greater emphasis on supporting economic growth despite inflation risks.
The policy divergence between the Fed and the BoC is likely to provide a floor for USD/CAD and may limit the pair’s downside potential. As a result, traders may prefer to wait for stronger selling momentum before concluding that the recent uptrend has ended. Attention now shifts to the upcoming US Producer Price Index release, while developments in the Middle East and movements in oil prices are expected to remain key drivers of market sentiment.
Political friction and weakening economic data are putting downward pressure on the British Pound. Ahead of Friday’s critical April GDP release, markets are weighing the threat of a recession against the likelihood of more Bank of England rate hikes aimed at curbing energy-driven inflation. This cautious sentiment is deepened by a high-stakes leadership challenge within the ruling Labour Party, prompting major financial institutions to downgrade their short-term outlook for Sterling.
Weak Growth and Fiscal Vulnerabilities Threaten to Drag Down the Pound
Macro strategists at Brown Brothers Harriman (BBH) warn that the British Pound is highly vulnerable to a sharp drop against the US Dollar. This risk is driven by a combination of a shrinking UK economy and persistent stagflationary pressures. While the Bank of England (BOE) is expected to step in to control inflation, potential political instability could undermine the nation’s fiscal credibility, accelerating the currency’s decline.
Key Takeaways:
GBP/USD Forecast: The exchange rate is projected to slide to 1.3100, reflecting a stronger US economic outlook compared to the UK’s.
The BOE’s Dilemma: Raising interest rates during a period of low growth and high inflation won’t spark a bullish run for the Pound, though it should help cushion its fall.
Political Risk: Any upcoming leadership shake-ups could damage fiscal trust, worsening the currency’s downward trajectory.
Uncertainty Surrounds the Bank of England’s Next Steps
Economists at Societe Generale suggest that the political buzz surrounding Manchester Mayor Andy Burnham’s bid for the Labour leadership is unlikely to trigger drastic policy shifts in the near term. Meanwhile, the Bank of England’s (BoE) monetary policy outlook remains mixed. While aggressive, hawkish members of the Monetary Policy Committee (MPC) are strongly advocating for an immediate interest rate hike, the broader consensus points toward a more cautious, “wait-and-see” approach.
Key Takeaways:
Rate Decision Outlook: The BoE is expected to keep interest rates unchanged for the June meeting.
MPC Division: Members pushing for a rate hike are anticipated to remain in the minority.
Political Impact: Political noise from the Labour leadership contest is expected to have a limited impact on the broader economic landscape.
Major Banks Forecast a Downward Bias for the British Pound
Major financial institutions expect the British Pound to face a weak outlook. While both institutions anticipate a lack of upward momentum, their specific forecasts differ based on economic drivers:
Brown Brothers Harriman (BBH): Maintains an explicitly bearish stance, predicting the GBP/USD pair will drop to 1.3100. This is driven by the UK’s weak growth narrative underperforming compared to a stronger US economy.
Societe Generale: Foresees a more range-bound, stagnant path. They believe the Pound lacks immediate upward momentum because the Bank of England is expected to hold interest rates steady rather than pursuing aggressive hikes.
Traders are currently holding the biggest short position on the U.S. dollar in six months. However, when positioning becomes overly one-sided, markets often move in the opposite direction.
The “debasement trade” was built on expectations of Fed rate cuts and easing inflation. But instead, inflation has reaccelerated, with April CPI at 3.8% and PPI at 6%, leaving the Fed on hold potentially through 2027.
While the inflation surge is largely driven by energy prices, underlying service-sector inflation remains persistent, limiting the Fed’s ability to ease policy even if oil prices decline.
A stronger U.S. dollar acts as a channel for global monetary tightening, weighing on assets like gold, silver, and oil, while also creating an asymmetric setup for long-duration Treasury bonds.
The preferred strategy is a barbell approach: holding short-term Treasury bills for stable yield with minimal duration risk, while gradually adding long-duration exposure as 30-year yields move toward the 5% level.
The most crowded short in U.S. markets isn’t in equities or big tech—it’s the U.S. dollar. Earlier this year, speculators extended dollar selling for eight consecutive weeks, while asset managers turned net short on the DXY for the first time in months.
Across macro funds, the positioning is strikingly uniform: expectations for a weaker dollar, stronger gold and commodities, and a broader narrative of currency debasement. In that context, the “strong dollar” trade—effectively betting against this consensus—has become the potential pain trade heading into 2026. When positioning becomes one-sided, the market often moves in the opposite direction.
In macro terms, positioning is one of the clearest signals of vulnerability, revealing where consensus is most exposed. At present, that exposure is heavily skewed to one side.
According to Saxo’s COT analysis for early January, non-commercial positioning in IMM FX futures showed roughly $11.9 billion in net dollar shorts, the largest bearish exposure in about six months. Asset managers had also shifted to a net short DXY stance for the first time since mid-October, aligning with leveraged funds in a broadly bearish dollar view. As Bob Farrell’s Rule #9 notes, when consensus becomes near-unanimous, the market is often closest to a reversal.
The flaw in the dollar-bearish narrative is that it was built on expectations that never materialized. The market assumed the Federal Reserve would begin cutting rates, inflation would continue easing, and foreign currencies such as the euro, yen, and many emerging-market currencies would benefit from an improving global growth outlook.
Instead, inflation has remained stubbornly elevated. April CPI rose 3.8% year-over-year, its highest reading since May 2023, while PPI accelerated to 6%, marking the strongest pace since 2022. Core PPI, which strips out food and energy prices, climbed to 5.2%, underscoring persistent underlying price pressures.
As a result, markets have dramatically reassessed the policy outlook. Expectations for Fed rate cuts throughout 2026 have largely been priced out, while the probability of a rate hike before year-end has rebounded to roughly 35%–39%.
With inflation proving more persistent and monetary easing no longer imminent, the foundation of the widespread short-dollar trade has weakened considerably. The assumptions that justified betting against the dollar are no longer supported by the data.
A fair counterargument to the strong-dollar view is that much of the recent inflation surge can be traced back to energy. The U.S.–Iran conflict that erupted in late February pushed crude oil to its highest levels in four years, making energy the primary driver of both the CPI and PPI increases. Remove food and energy from the equation, and core CPI comes in at 2.8% rather than the headline 3.8%.
From the debasement perspective, the case is straightforward: inflation is being distorted by a temporary oil shock. If crude prices retreat, headline inflation should ease, giving the Federal Reserve room to resume rate cuts and reviving the bearish-dollar thesis.
The challenge with that argument is what lies beneath the surface of the inflation data. April’s PPI report showed that services accounted for roughly 60% of the monthly increase, marking the strongest services inflation since 2022. Meanwhile, core producer prices excluding food, energy, and trade services rose 4.4% year-over-year.
That matters because services inflation is not simply a reflection of higher fuel costs. It points to broader price pressures spreading through the economy, supported by resilient demand and continued economic strength. Unlike an oil-driven spike, these pressures tend to be more persistent and do not disappear as soon as energy prices decline. Even if crude retreats, the underlying inflation trend may prove sticky enough to keep the Fed cautious and delay the policy easing that dollar bears have been counting on.
The bearish-dollar thesis depended on two key developments: easing inflation and Federal Reserve rate cuts. At this point, neither appears to be materializing.
The Hawkish Shift Supporting the Dollar
The confirmation of Kevin Warsh as Fed Chair on May 13 reinforces the possibility of a more hawkish policy environment. The irony is notable. While Warsh was widely expected to support lower rates and has previously acknowledged room for monetary easing, he has spent years criticizing quantitative easing and advocating for a smaller Fed balance sheet. Now he finds himself facing a backdrop of accelerating inflation that limits his flexibility.
Even if Warsh would prefer to deliver the rate cuts many investors anticipated, current economic conditions may not allow it. Following the April CPI release, analysts such as Krishna Guha argued that the inflation data strengthened the case of policymakers who believe the Fed’s next move could be a hike rather than a cut.
The market’s expectations have shifted accordingly. Goldman Sachs has pushed its forecast for the next rate cuts to December 2026 and March 2027, envisioning only two quarter-point reductions over that period. With producer inflation accelerating, oil prices elevated, and labor-market conditions remaining firm, the environment looks far less supportive of a weaker dollar than many investors had expected.
Why the Dollar Trade May Still Be Early
Although the Dollar Index has rebounded from below 97 in late April to around 98.8 by mid-May, the broader move remains modest. The dollar is still lower on the year by roughly 1.5%, meaning the bullish-dollar trade has yet to become crowded.
That is precisely what makes the setup interesting. Investor positioning remains heavily skewed toward dollar weakness, while the fundamental catalysts increasingly point in the opposite direction. If expectations continue to shift toward higher-for-longer rates, the dollar could have significant room to appreciate simply because so few investors are positioned for that outcome.
The 1970s Comparison May Be Misleading
A common argument among dollar bears is that the current environment resembles the inflationary 1970s, implying sustained currency debasement and negative real returns. However, the real-yield backdrop today looks fundamentally different.
Using April’s 3.8% CPI reading, realized real yields remain positive:
2-year Treasury: approximately +0.1%
10-year Treasury: approximately +0.7%
Fed funds rate: approximately +0.7%
Meanwhile, the 10-year Treasury Inflation-Protected Securities (TIPS) market implies a real yield near 1.95%, reflecting investors’ expectations for future inflation rather than current price growth.
Those figures are not especially restrictive, but they are far removed from the 1970s experience, when real yields frequently plunged to around -5%. That distinction matters. Sustained dollar weakness typically requires deeply negative real returns and an aggressively accommodative central bank. Today’s environment features neither condition, suggesting the historical comparison may be overstated and that the case for a stronger dollar remains more compelling than current market positioning implies.
The key takeaway from the 1970s comparison is that while the U.S. fiscal backdrop may share some similarities—rising debt levels and significant foreign ownership of Treasuries—the economic transmission mechanism that drove the dollar’s collapse during that era is largely absent today. The 1970s featured deeply negative real interest rates, a self-reinforcing wage-price spiral, and an economy heavily dependent on oil-intensive industrial production. Without those ingredients, the historical parallel begins to break down.
What a Stronger Dollar Could Mean for Commodities
The implications are significant because many commodity markets remain positioned for the opposite outcome. Gold, silver, and crude oil have all benefited from expectations of a weaker dollar, easier monetary policy, and continued currency debasement. If the dollar strengthens instead, the underlying assumptions supporting those trades become less compelling.
Gold and silver are particularly sensitive to dollar movements. Because they are priced in U.S. dollars, a stronger greenback raises their cost in foreign currencies and can reduce international demand. Silver may face additional pressure because, unlike gold, it relies more heavily on industrial consumption, which tends to soften when financial conditions tighten and economic growth slows.
Oil presents a more complex case. On one hand, crude prices remain supported by supply concerns stemming from the U.S.–Iran conflict. On the other, a stronger dollar and slower global growth would typically weigh on demand and exert downward pressure on prices. As a result, oil is caught between geopolitical risk and macroeconomic headwinds.
According to market commentary from the delta-one desk at Goldman Sachs, a meaningful decline in crude prices could help broaden equity market participation beyond the dominant mega-cap technology names. A stronger dollar could contribute to that outcome, particularly if tensions around the Strait of Hormuz begin to ease.
Why Lower Oil May Not Mean Lower Rates
The most important aspect of the thesis is that falling oil prices do not automatically lead to Federal Reserve easing. Lower crude prices would likely reduce headline inflation, but they would do little to address the persistent services inflation embedded throughout the economy.
If services inflation remains elevated, the Fed may have little incentive to cut rates even as energy prices retreat. In that scenario, the dollar would retain support from relatively high interest rates while commodities lose support from falling inflation expectations.
That dynamic creates a challenging backdrop for the broader commodity-supercycle narrative. Much of the bullish case for gold, silver, and other dollar-denominated assets rests on the assumption of a weakening dollar and easier monetary policy. If those assumptions prove incorrect, the foundation supporting the trade becomes considerably less stable, raising the risk of a significant reversal across commodity markets.
This is where the debate diverges most sharply from the prevailing gold-and-debasement narrative. The common view is that fiat currencies and government bonds are structurally impaired, leaving hard assets as the only viable refuge. But if the dollar strengthens, the chain of effects may point in the opposite direction.
A stronger dollar acts as a powerful transmission mechanism for global financial tightening. It:
Drains liquidity from emerging markets.
Increases the burden of dollar-denominated debt for foreign borrowers.
Tightens global financial conditions.
Slows economic activity outside the United States.
Over time, that slowdown can feed back into the U.S. economy, reducing inflation pressures and lowering inflation expectations. When that happens, long-term Treasury yields tend to fall rather than rise.
This is why the bond market may be more attractive than many investors currently assume. The 30-year Treasury yield closed near 4.98% on May 11, hovering just below the 5% threshold that Michael Hartnett has identified as a level where broader market stress could emerge. If tighter financial conditions begin to weigh on growth, the long end of the Treasury curve could rally as investors seek safety and markets price in slower economic activity.
In that environment, Treasury bonds—after enduring one of their worst multi-year periods in decades—could become one of the biggest beneficiaries of a stronger-dollar regime. The irony is that the same dollar appreciation many investors dismiss as unlikely may be the catalyst that restores bonds’ traditional role as portfolio stabilizers.
Viewed through this lens, the sequence is not:
Dollar weakness → higher inflation → higher bond yields → hard assets win.
Instead, it may be:
Dollar strength → tighter global liquidity → slower growth → lower inflation expectations → lower long-term yields → bonds outperform.
That possibility is largely absent from current consensus positioning. Many investors remain heavily allocated to the debasement trade—long gold, long commodities, short duration, and short dollar. If the dollar continues to strengthen, the assets expected to benefit from inflation could face headwinds, while the most neglected trade may be a recovery in long-duration Treasury bonds.
The broader implication is that the debate may not be about whether inflation exists today, but about which force ultimately dominates: persistent inflation or the growth slowdown that tighter financial conditions can create. If the dollar becomes the vehicle for that tightening, bonds could emerge as the unexpected winner.
How to Position for the Trade
To be fair to the opposing view, the debasement thesis is not without merit. U.S. fiscal deficits remain large, government debt continues to grow, and central banks around the world are accumulating gold at the fastest pace in decades. Meanwhile, bond markets are showing signs of stress elsewhere: Japan’s long-term yields have surged to record highs, and the UK continues to grapple with periodic gilt-market volatility.
The key issue, however, is that these challenges are not unique to the United States. The euro area faces its own fiscal constraints, Japan is dealing with mounting pressure in its government bond market, and the UK remains vulnerable to political and fiscal uncertainty. Currency markets are relative, not absolute. In that comparison, the U.S. dollar still benefits from higher yields, deeper capital markets, and a Federal Reserve that remains reluctant to ease policy while inflation pressures persist.
In other words, the dollar may not be attractive because conditions in the U.S. are ideal—it may be attractive because conditions elsewhere are no better and, in some cases, worse.
A Barbell Strategy for a Stronger-Dollar Scenario
If the stronger-dollar thesis proves correct, a barbell approach offers a logical way to express the view.
One side of the portfolio:
Hold cash and short-duration Treasury bills.
Capture yields above 4%.
Avoid duration risk.
Benefit directly from a higher-for-longer interest-rate environment.
The other side of the portfolio:
Gradually accumulate longer-duration Treasuries as yields approach historically attractive levels.
Long-duration instruments could benefit disproportionately if tighter financial conditions eventually slow growth and drive long-term yields lower.
Vehicles such as long-duration Treasury ETFs become increasingly attractive if the economy weakens while the Fed remains restrictive.
This structure allows investors to earn attractive short-term yields today while maintaining exposure to a potential bond rally if growth deteriorates.
Commodities: More Caution Than Conviction
Under a stronger-dollar scenario, the risk-reward profile for commodities becomes less favorable.
Gold: After a substantial rally over the past year, much of the easy upside may already be reflected in prices.
Silver: Faces both monetary and industrial headwinds if tighter financial conditions weigh on growth.
Oil: Still supported by geopolitical risks, but vulnerable to a combination of stronger-dollar effects and weaker global demand.
Rather than aggressively adding commodity exposure, investors may find it more prudent to reduce overweight positions or maintain only modest allocations as hedges against geopolitical shocks.
The Investment Implication
The central argument is not that a stronger dollar is guaranteed. It is that the market remains heavily positioned for the opposite outcome.
Consensus trades often become vulnerable when the underlying assumptions begin to weaken. If inflation remains sticky, rate cuts continue to be pushed further into the future, and global growth slows under tighter financial conditions, the strongest opportunities may emerge in assets that few investors currently favor:
Long U.S. dollars.
Short-duration Treasuries.
Selective long-duration bond exposure.
Reduced reliance on the commodity-debasement narrative.
The essence of the trade is simple: position for the outcome that the market is least prepared for. If the dollar strengthens while investors remain committed to the weak-dollar consensus, the resulting adjustment could become one of the most consequential macro shifts over the next several quarters.
Oil reacted to the disruption. Bonds responded to the cost. Gold is now reflecting something deeper: a fading sense of confidence.
There is an old hotel tactic used during times of disruption. When one room becomes unusable, guests are relocated to another. If that room develops problems, they are moved again. No one actually leaves the building. They simply shift from floor to floor, with each move marketed as a solution while the underlying issue remains unchanged.
That pattern mirrors market behavior since the Iran conflict escalated in February.
Investors have not discovered genuine safety. Instead, capital has rotated from one source of unease to another. It first rushed into oil, then retreated from bonds, moved away from gold, and eventually returned to gold once the initial shock faded. What was expected to be a safe-haven trade turned into a continuous cycle of repositioning.
The headline story is energy. The more important story is confidence. Gold’s resilience suggests investors are increasingly questioning not just economic fundamentals, but the reliability of the systems meant to provide stability.
The First Domino to Fall
Oil was always destined to react before any other major asset class. The conflict initially impacted the physical foundations of global commerce long before it affected investor sentiment. As concerns grew over the flow of crude through the Strait of Hormuz, markets were forced to account for potential disruptions to one of the world’s most critical energy corridors.
The response was largely driven by fundamentals, not panic. Traders were not pricing fear; they were pricing reduced supply.
Energy underpins nearly every sector of the economy. From transportation and manufacturing to agriculture, aviation, and logistics, economic activity depends on reliable and affordable fuel. When oil prices surge, the effects rarely remain isolated within energy markets. Higher costs gradually work their way through supply chains, ultimately showing up in consumer prices across a wide range of goods and services.
That is why crude oil moved first. It was responding to an immediate threat to supply, making it the first market to reflect the consequences of disruption.
Gold’s Shakeout
Gold’s decline in March caught many investors off guard because it seemed to contradict the usual geopolitical playbook.
The conventional expectation was straightforward: rising geopolitical tensions drive investors toward safe-haven assets, providing support for gold.
Yet gold moved lower.
The reason was far less dramatic than the headlines suggested. In its early stages, the Iran conflict was viewed primarily as an inflationary shock rather than a broad risk-off event. As oil prices surged, bond yields climbed as investors reassessed inflation prospects and the likelihood of tighter monetary policy. Higher real yields and a stronger US dollar created headwinds for precious metals, while investors seeking cash raised liquidity wherever they could.
Gold, being one of the world’s most liquid assets, became a source of funds.
That distinction matters. The sell-off was not a rejection of gold’s role as a store of value. Instead, it reflected a temporary rush for liquidity as markets adjusted to a rapidly changing environment.
Price action supports that interpretation. Gold retraced sharply toward the $4,100 area, bringing its 200-day moving average into focus. However, the longer-term trend remained intact, with the 200-day average continuing to slope higher throughout the correction. Rather than signaling a structural breakdown, the decline resembled a healthy reset within an ongoing bull market.
Bonds Started Asking Questions
While much of the market’s attention was directed toward oil and gold, the bond market was sending a more significant message.
Traditionally, government bonds have served as the ultimate safe haven during periods of geopolitical and economic uncertainty. Yet this time, bond yields rose sharply. Rather than benefiting from a flight to safety, sovereign debt markets began demanding a higher premium from investors.
That development carries important implications.
Conflict raises government spending. Energy shocks fuel inflation. At the same time, many governments are already burdened with debt levels that would have been considered extraordinary only a few decades ago. Investors recognize that financing these obligations requires increasing amounts of borrowing, often at a time when confidence in long-term fiscal stability is becoming less certain.
The response has been telling. While private foreign investors continued allocating capital to US assets, foreign central banks and official institutions quietly moved in the opposite direction, becoming net sellers. Short-term capital remained engaged, but long-term reserve holders appeared increasingly cautious.
The distinction is important. Fast-moving capital often follows opportunity. Reserve capital prioritizes stability and preservation. When the latter begins reducing exposure, it can signal deeper concerns about risk, valuation, and future policy credibility.
For investors, that is a message worth paying attention to.
Why Money Is Returning to Gold
The seemingly erratic rotation of capital begins to make more sense when viewed through a broader framework.
Oil attracted investors because the supply disruption was immediate and tangible.
Bonds lost favour because the fiscal and financing consequences quickly became apparent.
Gold weakened because markets briefly prioritized liquidity above all else.
Yet capital eventually found its way back to gold because gold stands apart from both sets of risks.
Unlike oil, gold is not dependent on vulnerable supply chains or critical shipping routes. Unlike government bonds, it does not rely on policymakers maintaining market confidence or managing growing debt burdens. Gold carries no promise to repay, no maturity date, and no counterparty exposure.
That distinction helps explain why central banks continue adding to their gold reserves even as prices rise. Their purchases are not necessarily a bet on economic perfection or imminent crisis. Rather, they reflect a desire to diversify reserves away from a financial system that increasingly depends on expanding debt and ongoing policy intervention.
The Inflation Markets Have Yet to Fully Price
So far, investors have focused primarily on the most visible consequences of the conflict:
Higher oil prices.
More expensive fuel.
Rising inflation expectations.
The deeper effects are likely to emerge more gradually.
Elevated diesel costs increase transportation expenses. Higher fertiliser prices raise agricultural production costs. More expensive natural gas pressures industrial output. Delayed planting decisions can reduce future crop yields. Food inflation often arrives long after the original energy shock has faded from the headlines.
This is why the broader economic impact may still be underestimated. Oil prices can quickly reflect a supply disruption, but they do not immediately capture the ripple effects that spread throughout the economy over time.
If the conflict persists, the global economy could increasingly face conditions associated with stagflation — slower growth, stubborn inflation, and mounting fiscal strain. Such an environment tends to challenge bond markets and create uncertainty for energy markets.
Historically, however, it has often strengthened the case for gold, particularly when investors become more concerned about preserving purchasing power and reducing exposure to financial and policy-related risks.
The Morning After
A ceasefire or peace agreement would almost certainly spark a relief rally across financial markets. Oil prices would likely retreat as supply concerns fade, bond yields could ease as risk premiums decline, and gold might face short-term profit-taking as investors unwind defensive positions.
However, the end of hostilities would not instantly reverse the economic consequences already set in motion.
Energy inventories would need to be replenished. Damaged infrastructure would require repair. Supply chains disrupted by months of uncertainty would take time to recover. Governments would still be left managing the additional debt and financing costs accumulated during the conflict.
Peace may eliminate the immediate catalyst, but it cannot erase the inflationary pressures that have already filtered through the economy, nor can it remove the growing questions surrounding fiscal sustainability and sovereign balance sheets.
The Room Investors Keep Returning To
The hotel analogy remains relevant.
Capital first crowded into oil as markets focused on supply disruption. Confidence in bonds weakened as investors began confronting the fiscal implications. Gold was temporarily abandoned when liquidity became the market’s highest priority.
Yet each time investors have left, they have eventually found their way back.
Not because gold is the most exciting asset.
Not because it offers income or yield.
But because it remains one of the few assets that exists independently of another party’s obligation.
Stocks depend on earnings. Bonds depend on repayment. Currencies depend on policy credibility. Gold depends on none of these.
That distinction becomes increasingly important when markets shift from pricing a crisis to evaluating its long-term consequences.
Many investors still view the current environment primarily through the lens of war. Gold appears to be responding to something broader: the aftermath.
Oil has priced the disruption. Bonds are pricing the financial burden. Gold is increasingly pricing the slow erosion of confidence that often follows periods of rising debt, persistent inflation, and expanding fiscal commitments.
If that interpretation proves correct, the most significant market story may not be the conflict itself.
It may be what the conflict reveals about the foundations of the financial system long after the headlines fade.
Gold extends its decline from Friday’s strong US NFP-driven selloff, falling to its lowest level since March. Ongoing geopolitical tensions continue to support safe-haven demand for the US Dollar, while persistent inflation concerns reinforce expectations of further Federal Reserve tightening, adding pressure on the non-yielding precious metal.
Gold prices resumed their decline after a brief rebound during Asian trading, slipping to their lowest level since March 23. The precious metal came under pressure as renewed conflict in the Gulf lifted crude oil prices, fueling inflation concerns and strengthening expectations that major central banks may maintain a hawkish stance. As a non-yielding asset, gold has struggled amid rising interest-rate expectations and has now broken below its key 200-day SMA, leaving the $4,300 level in focus for bearish traders.
Geopolitical tensions remain elevated as the Israel-Iran conflict intensifies. Israel reported fresh strikes on military sites in western and central Iran after Iran launched ballistic missile attacks on Israel’s Ramat David air base. The unrest has also spread to neighboring regions, with reported military activity in southern Lebanon and northern Iraq, raising fears of a broader Middle East conflict. These developments have boosted safe-haven demand for the US Dollar, helping it hold near a two-month high and adding further pressure on gold.
Meanwhile, Friday’s stronger-than-expected US Nonfarm Payrolls report reinforced expectations that the Federal Reserve could keep interest rates higher for longer. The US economy added 172,000 jobs in May, significantly above forecasts of 85,000, while the unemployment rate remained steady at 4.3%. The robust labor market data prompted traders to increase bets on additional Fed tightening, with markets now assigning a greater probability of a rate hike before year-end.
The combination of a stronger US Dollar, rising Treasury yield expectations, and persistent inflation risks continues to favor downside pressure in gold. With no major US economic releases scheduled for Monday, market attention will remain focused on geopolitical developments. Later this week, traders will closely watch US CPI and PPI data, as well as policy decisions from the Bank of Canada and the European Central Bank, for fresh direction across financial markets.
Gold Daily Chart
Gold remains under bearish pressure after breaking below its 200-day Simple Moving Average (SMA), with the broader downtrend still intact. XAU/USD continues to move within a descending parallel channel, while technical indicators reinforce the negative outlook. The Moving Average Convergence Divergence (MACD) remains firmly in bearish territory and continues to weaken, signaling sustained selling momentum. Meanwhile, the Relative Strength Index (RSI) hovers near 33, indicating strong downside pressure, although approaching oversold territory could limit the pace of further declines in the near term.
On the upside, immediate resistance is seen at the 200-day SMA around $4,436.56, with stronger resistance emerging near the upper boundary of the descending channel at $4,555.49. As long as prices remain below these levels, the broader bearish trend is likely to persist.
On the downside, initial support is located near the channel’s lower boundary at $4,242.07. A decisive break below this support zone could accelerate losses and pave the way for a deeper correction, reinforcing the prevailing bearish market structure.
For several weeks, reports have indicated that Washington and Tehran are edging closer to a memorandum of understanding (MOU). Such an agreement would effectively extend the current ceasefire for around 60 days, providing both sides with time to pursue a broader and more durable peace arrangement. Many investors view this as a positive development for energy markets, expecting oil flows through the Strait of Hormuz to stabilize rapidly and potentially return to normal in short order.
However, that expectation may be overly simplistic. Even if an MOU is reached, it would not automatically trigger a significant increase in oil supply. In the near term, any additional barrels entering the market would likely come from crude that has already been produced, including oil held in storage or aboard stranded and floating vessels, rather than from a meaningful recovery in production or exports. As a result, the initial impact would be more about easing existing logistical bottlenecks than expanding the overall supply base.
The market also appears to be underestimating the operational challenges involved. Over the past two months, tanker fleets have been repositioned worldwide, insurance costs have risen sharply, and shipping risks remain elevated. Restoring normal trade flows is far more complicated than simply reopening a route. Shipowners and insurers will require confidence that vessels can safely transit the region before committing substantial capacity. Concerns over mines, navigation risks, military miscalculations, or renewed hostilities are unlikely to disappear immediately, meaning confidence may take time to rebuild.
From a broader perspective, a lasting recovery in supply would likely require something much more comprehensive than a temporary MOU. A full-scale agreement between the United States and Iran remains difficult to achieve, with major differences still unresolved regarding nuclear restrictions, sanctions relief, and the long-term framework governing transit through the Strait of Hormuz. These issues are deeply interconnected and unlikely to be settled quickly, even under favorable circumstances.
Realistically, negotiations could consume much of the proposed 60-day period, pushing discussions into the peak U.S. summer driving season. Moreover, the path toward a final agreement is unlikely to be smooth. The complexity that makes a comprehensive deal difficult to secure also increases the possibility of setbacks, delays, or periodic flare-ups. While markets often focus on eventual outcomes, they are generally less effective at pricing the risks associated with the negotiation process itself. In this case, that process matters greatly, as any disruption could quickly affect both sentiment and physical oil flows.
At the same time, underlying supply conditions remain tight. Inventories continue to decline steadily, and a prolonged negotiation period could accelerate those draws. Against this backdrop, the near-term balance of risks for crude oil prices still appears tilted to the upside. For that outlook to change meaningfully, investors would likely need to see not only a short-term MOU but also tangible progress toward a broader agreement capable of restoring shipping activity on a more permanent basis. For now, market pricing seems to reflect a level of confidence that may be running ahead of actual developments.
Gold prices move lower during Friday’s Asian trading session.
The precious metal remains under pressure as ceasefire negotiations between the United States and Iran show no meaningful progress.
Market participants are now awaiting the release of the US Nonfarm Payrolls (NFP) report for May, scheduled later on Friday.
Gold prices (XAU/USD) come under renewed selling pressure during Friday’s Asian session, slipping toward their lowest level of the week. The precious metal remains highly sensitive to ongoing geopolitical developments, with investors closely watching both the status of US-Iran ceasefire negotiations and the release of the US May employment report later in the day.
On Wednesday, Iran’s Foreign Minister, Abbas Araghchi, stated that negotiations aimed at ending the Middle East conflict had produced “no tangible progress.” While he noted that communication channels with Washington remain open, he warned that any Israeli strike on Beirut as part of operations against Hezbollah could trigger a full-scale renewal of the US-Iran confrontation.
Despite Iran’s assessment that talks have stalled, Donald Trump maintained that ceasefire discussions are nearing their final stage. Tensions escalated further on Wednesday after Iran launched missiles and drones at Kuwait and Bahrain, resulting in one fatality and multiple injuries at Kuwait’s main airport, following a US strike on an oil tanker bound for Iran.
The continued lack of progress toward a ceasefire after the most intense violence seen in weeks has heightened concerns about inflation and reinforced expectations that interest rates could remain elevated for longer. These factors have weighed on gold, which offers no yield to investors.
According to Bart Melek of TD Securities, rising inflation expectations linked to negative supply shocks have pushed bond yields higher, supported the US Dollar, and led markets to begin pricing in a potential Federal Reserve rate hike in late 2026.
Attention now turns to the US labor market report. Economists expect the May Nonfarm Payrolls (NFP) report to show an increase of 85,000 jobs, while the unemployment rate is forecast to remain unchanged at 4.3%. Any unexpectedly weak labor market data could pressure the US Dollar and provide support for gold prices in the near term.
Gold Daily Chart
Gold remains under bearish pressure in the near term
From a technical perspective, Gold (XAU/USD) continues to exhibit a negative near-term outlook. On the daily chart, the metal is trading below both the 100-day Moving Average and the middle Bollinger Band, reinforcing the prevailing downward trend. Meanwhile, the Relative Strength Index (RSI) is hovering around 40, indicating weak momentum without yet reaching oversold territory, which suggests there is still room for additional downside before sellers become exhausted.
On the upside, immediate resistance is seen near the middle Bollinger Band at around $4,545. Further barriers emerge at the upper Bollinger Band near $4,715, followed by the 100-day Moving Average at $4,795, which could limit any stronger recovery attempt.
On the downside, initial support lies near the lower Bollinger Band at approximately $4,370. A decisive break below this level could accelerate the correction and expose deeper losses. Conversely, if prices remain above this support area, Gold may enter a period of consolidation while maintaining its broader bearish structure.
The US Dollar Index retreats as improving market sentiment follows reports that Israel and Lebanon agreed to renew their ceasefire on Wednesday.
Risk appetite remains tempered, however, after President Trump warned that the ceasefire could be scrapped if Iran-backed forces were responsible for the deaths of US troops.
The Greenback could regain momentum if robust US employment data for May strengthens expectations that the Federal Reserve will keep interest rates elevated or raise them further.
The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, remains under pressure after posting gains for three consecutive sessions, hovering near 99.50 during Thursday’s Asian trading hours.
The US Dollar softened as risk sentiment improved following news that Israel and Lebanon agreed on Wednesday to renew their ceasefire. The deal, reached after US-mediated talks in Washington, is contingent on a “complete cessation” of hostilities by Iran-backed Hezbollah.
Although Israel and Lebanon do not maintain formal diplomatic ties, both sides also agreed to establish several pilot security zones where the Lebanese Armed Forces will exercise exclusive control, preventing the presence of non-state armed groups.
However, the improvement in market sentiment remained limited. According to reports from the Wall Street Journal, US President Donald Trump told advisers he could reconsider the ceasefire arrangement if Tehran were responsible for the deaths of US troops. Trump maintained that the week-long suspension of airstrikes remains in effect despite continued clashes in the region. He also indicated in an interview with the New York Post that a blockade extending through Labor Day remains a possibility, potentially delaying expectations for the reopening of the Strait of Hormuz.
Meanwhile, the Greenback could find renewed support as investors increasingly anticipate that the Federal Reserve may tighten monetary policy further this year. Better-than-expected US labor market indicators, including May’s ADP private employment figures and JOLTS job openings data, reinforced confidence in the resilience of the US economy and strengthened the case for higher interest rates for a longer period.
Market expectations have shifted notably as the ongoing conflict involving Iran continues to disrupt energy markets, lifting oil prices and fueling inflationary pressures. According to the CME FedWatch Tool, traders are now pricing in roughly a 42% probability of a Federal Reserve rate hike by December.
USD/CAD edges higher as risk-off sentiment leaves the Canadian Dollar unable to benefit from stronger crude oil prices. WTI crude extends gains after Iran launched unsuccessful ballistic missile attacks on Kuwait and Bahrain, heightening concerns over Middle East supply disruptions. Meanwhile, the US Dollar strengthens as fears surrounding a potential Strait of Hormuz closure fuel inflation worries and reinforce expectations that the Fed could keep interest rates higher for longer.
USD/CAD trades modestly higher around 1.3850 during Wednesday’s Asian session after posting slight losses in the previous session. The commodity-linked Canadian Dollar (CAD) remains subdued despite a continued rise in crude oil prices, as heightened market risk aversion keeps traders cautious and limits demand for risk-sensitive currencies.
West Texas Intermediate (WTI) crude extends its rally for a third straight session, hovering near $92.60 per barrel at the time of writing. Oil prices surged following renewed tensions in the Middle East after Iran launched ballistic missiles toward Kuwait and Bahrain. According to reports, the US Central Command (CENTCOM) intercepted the missile and drone attacks while carrying out self-defense strikes on Iran’s Qeshm Island.
Concerns over a prolonged closure of the Strait of Hormuz have intensified fears of wider energy supply disruptions, potentially fueling global inflation pressures. This environment continues to strengthen expectations that the Federal Reserve (Fed) will keep interest rates elevated for longer, providing additional support to the US Dollar (USD). The higher-for-longer rate outlook is also backed by resilient US economic data, with the May 2026 ISM Manufacturing PMI rising to 54.0 from 52.7 and exceeding market forecasts to mark the strongest expansion in factory activity since May 2022.
Further signs of economic resilience emerged from the labor market, as April JOLTS job openings climbed to a near two-year high of 7.61 million while layoffs declined. With both manufacturing and employment indicators remaining firm, investors are now turning their focus to Friday’s Nonfarm Payrolls report for further insight into the future direction of Fed monetary policy.
WTI could regain some ground as Tehran has suspended indirect talks with the United States.
Iran and its allies are reportedly planning to block the Strait of Hormuz and the Bab el-Mandeb Strait in a move aimed at pressuring Israel and its supporters.
Meanwhile, Goldman Sachs has cautioned that weaker-than-expected demand in China and Europe could pose significant downside risks to its fourth-quarter oil price outlook.
WTI crude slipped slightly after a sharp 4.71% rally in the previous session, trading near $90.60 per barrel during Asian hours on Tuesday. The pullback came despite heightened geopolitical tensions following reports from Iran’s Tasnim news agency that Tehran has suspended indirect negotiations with the United States.
The report also indicated that Iran and its “Resistance Front” allies across Yemen, Lebanon, and Iraq have coordinated plans to disrupt key maritime routes, including a potential blockade of the Strait of Hormuz and increased activity around the Bab el-Mandeb Strait, aimed at pressuring Israel and its allies.
Adding to the concerns, an Axios report on X suggested Iran deployed additional naval mines in the Strait of Hormuz last week, intensifying fears over the security of one of the world’s most critical energy chokepoints. These developments have raised doubts over any near-term de-escalation in the region.
However, US President Donald Trump struck a more optimistic tone, saying negotiations are still ongoing and hinting that a memorandum of understanding to reopen the Strait of Hormuz could be reached within a week. At the same time, regional diplomatic efforts continue, with Lebanon pushing to broaden ceasefire arrangements involving Hezbollah and Israel.
On the demand side, broader macroeconomic concerns are weighing on sentiment. Weak manufacturing data from China has added to worries about slowing growth in the world’s second-largest economy. Reflecting this, Goldman Sachs warned that softer oil demand in both China and Europe could pose significant downside risks to its fourth-quarter price forecasts, though it noted that persistent supply disruptions in the Middle East could still provide upside support.
Gold’s behavior during the recent U.S.-Iran conflict has defied both historical precedent and conventional market logic. Instead of rising when geopolitical tensions escalated and falling when tensions eased, gold has often done the opposite. However, several factors suggest this unusual pattern is likely temporary. If Iran continues to keep the strategically vital Strait of Hormuz closed, the near-term outlook for gold could become increasingly bullish.
Since the conflict began in late February, many of gold’s largest daily price swings have been driven by war-related headlines. Surprisingly, gold frequently sold off following military escalations and rallied on reports hinting at diplomatic progress. For example, gold fell sharply after Israeli strikes targeted Iran’s South Pars gas field, yet surged when reports emerged that the U.S. might accept an end to the conflict without reopening the Strait of Hormuz.
This “war-is-bearish, peace-is-bullish” relationship has become so pronounced that traders can often infer major geopolitical developments simply by observing gold’s overnight price action. A strong rally has typically signaled optimism about a peace agreement, while a steep decline has often coincided with military escalation.
Historically, gold has behaved very differently. Rising geopolitical risks have traditionally fueled safe-haven demand, attracting capital seeking protection from uncertainty. Following Russia’s invasion of Ukraine in 2022, for instance, gold climbed roughly 7.5% within two weeks. Yet despite the potentially larger economic consequences of the Iran conflict, gold has experienced a significant decline since the war began.
One explanation is that gold entered the conflict after an extraordinary multi-year bull market. By early 2026, gold had already posted one of the strongest cyclical advances in modern history, leaving the market extremely overbought and vulnerable to a major correction. Some of the initial weakness may therefore have reflected a natural rebalancing process rather than a response to geopolitical developments.
However, that explanation alone does not fully account for gold’s continued inverse reaction to war news. Analysts have increasingly pointed to another factor: gold has become a source of emergency liquidity for countries facing severe economic stress from soaring energy prices.
The closure of the Strait of Hormuz has disrupted a critical artery of global trade. Roughly one-fifth of the world’s oil and liquefied natural gas supplies pass through the Strait, along with significant volumes of fertilizers, sulfur, helium, aluminum, and other industrial materials. As energy prices surged, import-dependent nations faced mounting pressure on their currencies, trade balances, and inflation rates.
Turkey provides one of the clearest examples. Faced with a collapsing currency and soaring import costs, its central bank reportedly sold substantial amounts of gold reserves to stabilize financial conditions. This large-scale liquidation injected considerable supply into the market, contributing to gold’s sharp decline even as geopolitical risks intensified.
The situation gave rise to the “emerging-market piggy bank” thesis: countries struggling with higher energy costs may be forced to sell reserve assets—including gold—to fund imports, support their currencies, or subsidize domestic energy prices. Gold’s decline, therefore, may reflect forced selling rather than a lack of safe-haven demand.
India has faced similar pressures. As one of the world’s largest gold consumers and a major energy importer, it has experienced currency weakness and rising costs linked to the Strait closure. In response, Indian authorities significantly increased import duties on gold and silver, aiming to curb demand and reduce pressure on the country’s balance of payments. Concerns over weaker Indian gold demand further weighed on prices.
Taken together, Turkey’s reserve liquidations and India’s restrictions on gold imports appear to explain much of gold’s counterintuitive reaction to the conflict. These unusual circumstances have temporarily overwhelmed the metal’s traditional safe-haven role. As a result, gold’s recent tendency to fall on bad geopolitical news may be less a new market paradigm and more a short-lived anomaly driven by extraordinary economic stress in energy-importing nations.
Why Gold’s Unusual War Trade May Not Last
It is easy to understand why sentiment toward gold has turned increasingly negative in recent months. However, that does not necessarily mean gold will continue reacting negatively to escalating conflict. Like many popular market narratives, the current view appears overstated, and key data already challenges one of its central assumptions: central banks are not abandoning gold.
Following reports that Turkey sold large amounts of gold reserves to support its currency, many analysts expected global central-bank demand to collapse. Yet data from the World Gold Council showed otherwise. First-quarter 2026 central-bank purchases totaled 243.7 tonnes, virtually unchanged from the average pace of recent years. Turkey’s sales appear to have been a temporary liquidity measure rather than a structural shift away from gold.
Concerns about India’s higher gold import tariffs have also fueled bearish sentiment. While the new taxes could reduce Indian gold demand by roughly 25% this year, the potential shortfall represents only a small fraction of total global investment demand. Demand from other regions could easily offset much of that decline, particularly if inflation pressures intensify worldwide.
The larger issue is the ongoing disruption caused by the closure of the Strait of Hormuz. Prior to the conflict, roughly one-fifth of global oil consumption flowed through this critical shipping route. Although governments and companies have relied on strategic reserves and stored inventories to soften the blow, those buffers are steadily shrinking. As stockpiles decline, energy markets could face renewed supply pressures and significantly higher prices.
Iran appears to recognize that keeping the Strait effectively disrupted may be its strongest strategic leverage. By maintaining uncertainty around commercial shipping, it can continue exerting economic pressure without direct military escalation. The longer these disruptions persist, the greater the inflationary impact on the global economy.
Higher oil prices would raise transportation costs across virtually every industry, while fertilizer shortages and rising agricultural expenses could push food prices higher. Combined with weather-related challenges affecting crop production, inflationary pressures may become increasingly difficult to ignore.
Such an environment would likely strain economic growth, weaken corporate profits, and challenge elevated stock-market valuations. Rising inflation could also push bond yields higher, creating a more favorable backdrop for gold as a portfolio diversifier and inflation hedge.
Despite gold’s strong long-term performance, American investors remain significantly underexposed. The combined value of gold held through major U.S. gold ETFs represents only a tiny fraction of the value of the U.S. stock market. Even modest shifts in portfolio allocations toward gold could generate substantial new demand.
Meanwhile, gold futures positioning suggests speculative investors have plenty of room to increase exposure. After several months of consolidation, much of the excess enthusiasm that characterized gold’s record rally has been worked off, leaving the market in a healthier technical position.
As a result, the conditions for another upward leg in gold may be falling into place. While seasonal weakness could persist through early summer, rising inflation, tighter energy markets, and growing pressure on traditional financial assets could eventually reignite investor demand.
Bottom Line
Gold’s recent tendency to fall on worsening war news is likely an anomaly rather than a lasting trend. Much of the weakness can be traced to exceptional events such as Turkey’s reserve sales and concerns over India’s import restrictions. Yet global central-bank demand remains resilient, and the economic consequences of prolonged energy disruptions could ultimately strengthen the investment case for gold.
If inflation accelerates as energy and food prices rise, investors may once again turn to gold for protection and diversification. Given how little gold many stock investors currently own, even a modest reallocation of capital could provide meaningful support for prices in the months ahead.
International investors and governments increased their holdings of U.S. Treasury securities to an all-time high of $9.49 trillion in February 2026, with holdings rising $587 billion year-over-year and nearly $200 billion in a single month.
Central banks continued accumulating gold, adding 244 tonnes during the first quarter of 2026 and extending a buying streak that has lasted 17 months. However, because gold is traded globally in U.S. dollars, this trend still reinforces the dollar’s central role in the financial system.
The United Arab Emirates’ decision to withdraw from OPEC/OPEC+ came shortly after U.S. officials endorsed a potential emergency dollar liquidity arrangement for Abu Dhabi, highlighting the strategic influence of dollar-based financial support.
U.S. sanctions efforts against Iran have successfully frozen $344 million worth of cryptocurrency assets, illustrating how digital financial infrastructure linked to the dollar can strengthen U.S. economic enforcement power.
Overall, evidence from Treasury market demand, rising foreign capital inflows, and expanding digital-dollar adoption suggests that predictions of the dollar’s decline are not supported by current data.
For years, predictions of the US dollar’s decline have dominated headlines, and those claims have only grown louder. Critics argue that BRICS nations are creating a viable alternative to the dollar, China is reducing its holdings of US Treasuries, gold is poised to replace the dollar as the world’s primary reserve asset, and the US government is struggling to attract buyers for its mounting debt—so much so that it is allegedly using dollar swap lines with Gulf nations as an indirect liquidity support mechanism.
While these arguments make for a compelling narrative, the underlying data tells a different story. Despite the persistent warnings from dollar skeptics, there is little evidence to suggest that the dollar’s dominant role in the global financial system is meaningfully eroding.
The dollar’s dominance is far from disappearing. If anything, the developments seen in late April 2026 provided one of the strongest pieces of evidence in years that its position in the global financial system remains firmly intact.
Theory vs. Reality
For years, I’ve argued that the “dollar collapse” narrative mistakenly equates inflation with currency debasement. Those are not the same thing. A currency cannot realistically be considered debased when global demand for it continues to intensify. We’ve explored this rebasement perspective before in our discussions of the dollar’s global funding system and in The Dollar’s Death Is Greatly Exaggerated. The latest figures only strengthen the case that the U.S. dollar remains firmly dominant.
The most recent Treasury International Capital (TIC) report from the U.S. Treasury, released on April 15 and covering February 2026 activity, showed foreign investors purchased $101 billion of long-term U.S. securities in a single month. Total net TIC inflows reached $184.5 billion, while foreign investors also increased their Treasury bill holdings by another $91.6 billion. As a result, foreign ownership of U.S. Treasuries climbed to a record $9.49 trillion in February, rising by $198 billion during the month and by $587 billion over the previous year.
Even that record figure understates the true scale of foreign demand. It excludes Treasury exposure held through U.S.-based hedge funds and the Cayman Islands basis trade. According to Federal Reserve estimates, these channels account for roughly an additional $1.5 trillion of effective foreign demand. When those positions are included, total foreign-linked exposure to U.S. Treasuries approaches $11 trillion, underscoring the continued global appetite for dollar-denominated assets.
Looking beyond the total amount of debt outstanding, the flow data paints the same picture. Indirect bidders—widely viewed as a gauge of foreign demand—have consistently accounted for more than 70% of successful bids in recent Treasury auctions. Meanwhile, bid-to-cover ratios for both 10-year and 30-year Treasury sales have remained above 2.5 through multiple market cycles, signaling robust investor appetite.
If the world were genuinely abandoning the dollar, the evidence would look very different: weaker auction participation, higher yields caused by poorly received offerings, and a rising term premium as investors demanded greater compensation to absorb excess supply. Yet the data points in the opposite direction. Despite the U.S. running approximately $2.5 trillion in deficits over the past year, global investors have continued to absorb the resulting Treasury issuance with little difficulty.
Far from resembling a rush for the exits, these trends suggest exceptionally strong demand. In fact, they point to one of the most powerful and persistent periods of global demand for U.S. government debt ever recorded.
How Central Bank Gold Purchases Strengthen the Dollar’s Position
This is where many dollar-collapse narratives begin to break down. Gold advocates often make a fundamental mistake by treating central bank gold accumulation as proof that the world is abandoning the U.S. dollar. The reality is more nuanced.
There is no dispute that central banks have been aggressively increasing their gold reserves. According to the World Gold Council’s Q1 2026 Gold Demand Trends report, released on April 29, official-sector institutions purchased a net 244 tonnes of gold during the first quarter alone, a 3% increase from the same period a year earlier. That marked the seventeenth consecutive month of net central bank buying, despite gold prices surpassing $5,400 per ounce in January. Physical gold demand reached 474 tonnes during the quarter, making it the second-strongest first quarter on record. Looking ahead, the World Gold Council expects central banks to purchase approximately 850 tonnes of gold throughout 2026, broadly matching 2025 levels and extending a multi-year trend of substantial accumulation.
The trend is both genuine and important. However, interpreting it as evidence of a mass exodus from the dollar is a leap that the data does not support. Central banks are adding gold primarily as a reserve diversifier and geopolitical hedge, not as a replacement for the dollar-based financial system. Gold can store value, but it cannot replicate the liquidity, collateral function, settlement infrastructure, or global financing role provided by U.S. Treasury securities and dollar-denominated markets.
In other words, rising gold reserves and continued dollar dominance are not mutually exclusive. Central banks can accumulate gold while still relying heavily on dollars for trade settlement, reserve management, cross-border financing, and international liquidity. The growth of official gold holdings reflects diversification at the margin—not a practical abandonment of the world’s primary reserve currency.
A key point often overlooked in de-dollarization debates is that gold itself remains deeply embedded within the dollar-based financial architecture. Gold may be a reserve asset, but it is still primarily valued through a dollar lens. The London Bullion Market Association (LBMA) benchmark—the global standard used to value central bank gold holdings—is quoted in U.S. dollars per ounce. Whether it is the People’s Bank of China, the National Bank of Poland, or the Reserve Bank of India increasing its gold reserves, those holdings are ultimately measured, reported, and assessed in dollar terms.
The same principle applies when central banks use gold as a source of liquidity. Whether through swaps, repurchase agreements, or outright sales, transactions are typically priced against dollar benchmarks. Gold and dollars are therefore not competing monetary systems operating independently of one another. Rather, gold functions as a reserve asset within a broader framework that is still largely organized around the U.S. dollar.
This distinction fundamentally changes how central bank gold purchases should be interpreted. If a central bank reallocates 5% of its reserves from U.S. Treasuries into gold, that does not constitute an exit from the dollar system. It is simply a portfolio adjustment within a reserve structure where assets continue to be valued and compared using dollar-based metrics. The same logic applies to gold swaps conducted through the Bank for International Settlements, yuan-denominated contracts traded on the Shanghai Gold Exchange, and even the large gold accumulation programs undertaken by Central Bank of the Russian Federation before sanctions. Regardless of the transaction venue or currency of quotation, reserve managers still evaluate those positions against their dollar-equivalent value.
Viewed through that lens, growing gold reserves do not necessarily undermine dollar dominance. In many respects, they reinforce it by relying on the dollar as the world’s primary unit of account for reserve wealth.
The same surveys frequently cited as evidence of de-dollarization illustrate this nuance. While many central banks expect the dollar’s share of reserves to gradually decline over the coming years, actual reserve data tells a more measured story. According to the IMF’s COFER statistics for the fourth quarter of 2025, the U.S. dollar accounted for roughly 56.8% of allocated global foreign-exchange reserves. Although lower than the levels seen decades ago, that share remained broadly stable, with much of the quarter-to-quarter movement attributable to exchange-rate fluctuations rather than aggressive reserve liquidation.
At the end of 2025, total global foreign-exchange reserves stood above $13 trillion. Within that pool, the dollar remained by far the dominant reserve currency, holding a share that exceeded the combined weight of every major competitor except the euro. The euro represented roughly one-fifth of allocated reserves, while the Japanese yen and British pound each accounted for about 5%. Despite persistent discussion of its rise, the Chinese yuan continued to represent only a small fraction of global reserve holdings.
The broader takeaway is that reserve diversification and de-dollarization are not synonymous. Central banks may seek greater exposure to gold or other currencies, but the available data still points to a global reserve system in which the dollar remains the primary benchmark, funding currency, and store of international liquidity.
Bessent’s Dollar Swap Strategy Expands Dollar Dominance
Recent discussions surrounding potential new dollar swap lines have provided another example of how U.S. policymakers are working to reinforce, rather than merely defend, the dollar’s global position.
Treasury Secretary Scott Bessent has recently floated the idea of extending dollar swap arrangements to key partners in the Persian Gulf and Asia, with the United Arab Emirates frequently mentioned as a leading candidate. Critics have interpreted the proposal as an emergency measure designed to prevent foreign holders from selling U.S. Treasuries amid geopolitical tensions in the Middle East. However, that interpretation overlooks the broader strategic objective.
Bessent’s own comments suggest a different motivation. He has emphasized that swap lines help maintain stability in dollar funding markets and reduce the risk of disorderly asset sales during periods of stress. More importantly, he has argued that expanding swap-line networks can strengthen international dollar usage and create additional dollar funding hubs across strategically important regions.
At its core, this approach is about infrastructure. Dollar swap lines are one of the most powerful tools available for extending the reach of the global dollar system. During the 2008 financial crisis, swap lines were deployed primarily as a defensive measure, providing dollar liquidity to foreign central banks and preventing disruptions in global funding markets. The emerging strategy seeks to use the same mechanism more proactively by deepening the dollar’s presence in regions where competing financial architectures have been gaining attention.
The logic is straightforward. When a central bank receives permanent or highly reliable access to dollar liquidity through a swap arrangement, its domestic financial institutions gain confidence that dollars will remain available during periods of market stress. That assurance strengthens incentives to continue conducting trade, financing, and reserve management activities in dollars rather than investing heavily in alternative systems.
From a network perspective, every new swap line effectively creates another node within the global dollar ecosystem. Countries connected to these facilities become more deeply integrated into dollar funding markets, increasing the currency’s utility and reinforcing its network effects. This dynamic helps explain why existing swap-line arrangements among the United States, the European Central Bank, Japan, United Kingdom, Canada, and Switzerland have remained central pillars of the international monetary system since the global financial crisis.
Viewed through this lens, proposed Gulf and Asian swap lines are less about preventing a collapse in Treasury demand and more about extending the geographical footprint of the dollar system. Rather than signaling weakness, they represent an effort to strengthen the institutional infrastructure that underpins the dollar’s reserve-currency status and global liquidity role.
The broader implication is that dollar dominance is sustained not only by the size of the U.S. economy or the Treasury market, but also by the network of financial relationships that make dollars readily available around the world. Swap lines are one of the clearest examples of how that network continues to expand.
More importantly, this strategy is no longer merely theoretical. Advocates argue that Treasury Secretary Scott Bessent has already demonstrated the model in practice through a swap facility extended to Argentina in 2025. The objective was straightforward: provide dollar liquidity to a strategic partner during a period of political uncertainty, stabilize financial conditions, and reinforce that country’s integration into the global dollar system. The reported repayment of the facility within a relatively short period strengthened the case that such arrangements can function as effective tools of financial diplomacy rather than permanent rescue programs.
Under this framework, swap lines serve as an incentive mechanism. They offer trusted partners access to the world’s deepest pool of liquidity and strengthen their ties to dollar-based funding markets. Proposed arrangements with Gulf states and Asian economies can therefore be viewed as efforts to expand the geographic reach of the dollar network rather than emergency measures aimed at defending Treasury demand.
At the same time, the United States retains a second source of influence: its ability to enforce financial restrictions through sanctions, regulatory oversight, and control of key financial infrastructure. In this interpretation, dollar dominance is supported by both incentives and enforcement. Countries gain significant benefits from participating in the dollar system, but they are also aware of the costs associated with operating outside it.
Recent actions targeting Iranian financial networks illustrate this point. Through sanctions programs administered by the Office of Foreign Assets Control and other agencies, the U.S. government continues to demonstrate its capacity to restrict access to international financial channels and freeze assets connected to sanctioned entities. These measures highlight the extent to which global finance remains intertwined with institutions, payment systems, and compliance frameworks linked to the dollar.
The implications extend beyond traditional banking. Cryptocurrencies and stablecoins are often portrayed as alternatives to the existing monetary order, but many of the largest digital-asset ecosystems remain dependent on regulated exchanges, custodians, issuers, and financial intermediaries. As a result, authorities can frequently exercise influence through compliance requirements and enforcement actions, limiting the extent to which these networks operate entirely outside government oversight.
From this perspective, dollar dominance is reinforced through two complementary forces. The first is attraction: deep capital markets, abundant liquidity, reserve-currency status, swap-line access, and the global demand for U.S. Treasury securities. The second is enforcement: sanctions authority, asset freezes, financial blacklists, and regulatory reach. Together, these mechanisms create powerful incentives for governments, banks, and reserve managers to remain connected to the dollar ecosystem.
This does not mean that countries are abandoning efforts to diversify reserves or reduce specific vulnerabilities. Many continue to increase gold holdings, explore alternative payment arrangements, and spread custodial risk across jurisdictions. However, diversification is not the same as disengagement. For many reserve managers, the calculation remains that participation in the dollar-centered financial system offers benefits and stability that are difficult to replicate elsewhere, even as they seek greater flexibility around the margins.
The UAE’s Exit and the De-Dollarization Debate
Supporters of the dollar-dominance thesis point to recent developments in the Gulf as evidence that financial influence often matters as much as formal reserve statistics. In their view, the reported decision by the United Arab Emirates to distance itself from the traditional OPEC framework came at a strategically significant moment, coinciding with discussions about closer financial cooperation with Washington.
The argument focuses on sequence and incentives. During a period of heightened regional uncertainty and financial stress, U.S. policymakers discussed expanding dollar liquidity support to key partners. At the same time, senior UAE officials engaged with representatives from the U.S. Treasury, the International Monetary Fund, and the Federal Reserve System. Proponents of this interpretation argue that access to dollar liquidity, security cooperation, and deeper integration into U.S.-led financial networks created powerful incentives for closer alignment with the dollar-based system.
From that perspective, swap lines are not simply emergency funding mechanisms. They are strategic tools that deepen economic ties and strengthen the network effects that support the dollar’s global role. The broader claim is that countries offered reliable access to dollar liquidity have fewer incentives to build alternative financial architectures around competing currencies.
As a result, advocates argue that this episode weakens the long-running “petroyuan” narrative. Rather than seeing a major Gulf economy move toward a yuan-centered energy pricing system, they see another example of a strategically important state reinforcing its links to the dollar ecosystem.
Counterargument: Does De-Dollarization Still Matter?
The strongest de-dollarization case remains a serious one. Following the freezing of roughly $300 billion of Russian reserves in 2022, many governments concluded that reserve assets held within Western financial systems carried political and geopolitical risks. This prompted efforts to diversify reserve management practices, expand local-currency trade arrangements, accumulate gold, and explore alternatives to traditional dollar settlement networks.
Examples frequently cited include growing cooperation among BRICS members, increased bilateral trade settlement between China and Russia, and shifts in custodial arrangements for foreign-exchange reserves. These developments are real and reflect an ongoing desire among some countries to reduce exposure to potential sanctions risk.
However, supporters of the dollar-dominance view argue that these changes have largely occurred within the existing financial architecture rather than outside it. Moving Treasury holdings from direct custody in the United States to institutions such as Euroclear changes where assets are held, but not necessarily what assets are held. Likewise, increasing bilateral trade settlement in yuan or other currencies does not automatically create a viable alternative to the broader dollar-based system.
The core challenge for de-dollarization remains scale. A reserve currency must provide deep and liquid capital markets, a large supply of high-quality collateral, broad convertibility, legal protections, and global acceptance. While alternatives have made incremental gains, none have yet matched the combination of liquidity, market depth, and network effects that support the dollar.
As a result, the debate today is less about whether diversification is occurring—it clearly is—and more about whether diversification at the margins is sufficient to fundamentally reshape the global monetary system. Thus far, the evidence suggests gradual evolution rather than a rapid displacement of the dollar’s central role.
The key mistake in many de-dollarization arguments is treating diversification as if it were abandonment. Those are not the same thing. Foreign reserve managers are increasingly diversifying where they hold assets and expanding allocations to gold, but neither trend necessarily implies a departure from the dollar-centered financial system.
In practice, many central banks are pursuing two parallel objectives. First, they are reducing custodial concentration by spreading reserve assets across multiple jurisdictions and institutions. Second, they are increasing gold holdings as a hedge against geopolitical and financial uncertainty. Yet these adjustments leave the dollar largely intact as the world’s primary unit of account, dominant settlement currency, and leading reserve asset. Reserve composition may be evolving at the margins, but the underlying structure of the system remains remarkably stable.
The dollar’s influence is also expanding through channels that traditional reserve statistics often fail to capture. One of the most important developments is the rapid growth of dollar-denominated digital assets across emerging markets. In regions such as Latin America, Africa, and Southeast Asia, stablecoins have become increasingly popular as tools for savings, payments, and access to dollar exposure where local currencies face inflation or volatility.
A notable example is Tether, the issuer of the USDT stablecoin. According to the company’s first-quarter 2026 attestation, it held approximately $141 billion in direct and indirect exposure to U.S. Treasury securities as of March 31, supported by total assets of roughly $191.8 billion against liabilities of $183.5 billion. The company also reported a reserve surplus exceeding $8 billion and more than $1 billion in quarterly profit.
These figures are significant because they illustrate how digital-dollar adoption can generate additional demand for U.S. government debt. Stablecoin issuers typically back their tokens with highly liquid dollar assets, including Treasury bills and other short-term government securities. As stablecoin usage grows internationally, so does the indirect demand for dollar-denominated reserves.
Viewed through this lens, digital finance may be reinforcing rather than weakening the dollar’s global position. Instead of replacing the dollar, many of the most widely used digital assets effectively extend the reach of dollar liquidity into markets that previously had limited access to traditional banking infrastructure.
The broader implication is that the future of dollar dominance may not depend solely on central-bank reserve allocations. Increasingly, it may also be shaped by private-sector demand for digital dollars, cross-border payment networks, and new forms of dollar-based financial infrastructure that continue to expand the currency’s global footprint.
The dollar’s reach is increasingly extending beyond traditional banking and central-bank reserves into the digital economy. Supporters of the dollar-dominance thesis argue that this trend is particularly visible in emerging markets, where dollar-linked stablecoins are becoming a preferred vehicle for savings, payments, and wealth preservation.
Recent growth in USDT circulation illustrates the scale of that demand. As the supply of dollar-pegged stablecoins continues to expand, issuers accumulate larger holdings of U.S. Treasury securities and other dollar-denominated assets to back those tokens. In effect, every new digital dollar created generates additional demand for the underlying dollar-based financial infrastructure.
The trend is especially pronounced across parts of Latin America, Africa, and Southeast Asia, where concerns about local currency volatility have encouraged users to hold digital dollars instead of local cash balances. Some industry reports have described this phenomenon as “digital dollarization”—a process in which individuals gain access to dollar exposure through blockchain networks rather than through traditional bank accounts.
From a monetary perspective, this is an important distinction. Many observers originally viewed cryptocurrencies as potential competitors to the dollar. Yet the fastest-growing segment of the digital asset market has often been dollar-backed stablecoins rather than non-sovereign alternatives. As a result, blockchain adoption in many regions has expanded demand for dollar-linked assets rather than displaced them.
Regulatory developments further reinforce this dynamic. The implementation of stablecoin legislation and enhanced compliance requirements has increasingly tied major issuers to the existing financial system. Requirements that reserves be backed by high-quality liquid assets—primarily short-term U.S. government securities—strengthen the connection between stablecoin growth and Treasury demand.
At the same time, regulatory oversight gives authorities greater visibility and enforcement capability within digital-dollar networks. Compliance obligations imposed on issuers, exchanges, and custodians allow regulators to block, freeze, or restrict assets associated with sanctioned entities when required by law. This means that large portions of the stablecoin ecosystem operate not outside the traditional financial system, but as an extension of it.
Viewed through this lens, digital dollars may represent one of the newest channels through which dollar dominance is being reinforced. Rather than creating a parallel monetary order, stablecoins are increasingly embedding dollar liquidity, Treasury demand, and regulatory reach into global digital payments networks.
The broader takeaway is that the future of dollar dominance may depend not only on central banks and sovereign reserves, but also on millions of individuals and businesses choosing to hold digital representations of dollars. If that trend continues, the dollar’s influence could become even more deeply integrated into everyday economic activity around the world.
What This Means for Investors
If the dollar-dominance thesis is correct, the investment implications extend across bonds, equities, gold, and digital-finance infrastructure.
First, persistent foreign demand for U.S. Treasuries suggests ongoing support for the long end of the yield curve, even amid large federal deficits. Strong international demand can help absorb increased issuance and potentially moderate upward pressure on long-term interest rates. From that perspective, duration exposure may offer more value than many deficit-focused forecasts imply.
Second, central-bank gold accumulation appears to be creating a stronger structural foundation for gold prices than existed in previous cycles. That does not necessarily make gold a substitute for fiat currencies. Rather, it reinforces gold’s role as a portfolio diversifier, inflation hedge, and geopolitical-risk buffer. Investors may benefit from maintaining strategic gold exposure, but the argument is increasingly about diversification rather than preparing for the collapse of the monetary system.
Third, the expansion of digital-dollar infrastructure is creating new investment opportunities across payments, custody, and financial technology. Companies such as CRCL, COIN, V, MA, JPM, and BK operate at the intersection of traditional finance and emerging digital-dollar networks, positioning them to benefit if stablecoin adoption continues to grow globally.
The contrarian takeaway is that many investors who positioned heavily for an imminent dollar collapse may have missed some of the strongest-performing asset classes of the past several years. U.S. equities continued to attract capital, Treasury securities remained central to global reserve portfolios, and the broader dollar-based financial system proved more resilient than many critics anticipated.
This does not mean investors should ignore risks. Fiscal deficits, rising debt-service costs, geopolitical tensions, sanctions-related fragmentation, and potential competition from future central bank digital currencies all deserve close attention. These factors could influence the dollar’s long-term trajectory and should remain part of any serious macroeconomic analysis.
However, the evidence presented by proponents of the dollar-dominance view points to a different conclusion than the popular collapse narrative. Foreign demand for Treasuries remains robust. Central banks continue to buy gold while largely operating within a dollar-priced reserve framework. Swap lines are being used to deepen dollar liquidity networks. Stablecoins and digital-dollar platforms are expanding dollar access across emerging markets.
Taken together, these trends suggest that the dollar is not disappearing from the global financial system. Rather, it is adapting to new technologies, new payment channels, and new geopolitical realities while retaining many of the advantages that have supported its dominance for decades.
For investors, the practical lesson is not necessarily to bet exclusively on the dollar, but to recognize that many of the world’s most important financial markets, reserve assets, payment networks, and digital-finance platforms remain deeply connected to the dollar ecosystem. Understanding that infrastructure may prove more valuable than betting on its imminent collapse.
The US Dollar Index (DXY) weakened toward the 98.90 area on Friday as improving risk sentiment reduced demand for traditional safe-haven assets. Although the latest US Core Personal Consumption Expenditures (PCE) Price Index remained unchanged at 3.3% year-over-year in April, reinforcing expectations that the Federal Reserve could maintain higher interest rates for longer, investors focused primarily on geopolitical developments. Reports indicating that the United States and Iran had reached a memorandum of understanding to extend their ceasefire by 60 days, reopen the Strait of Hormuz, and begin nuclear negotiations boosted confidence across financial markets.
The EUR/USD pair advanced toward 1.1670, supported by broad-based US Dollar weakness and improving investor appetite for risk.
Meanwhile, GBP/USD climbed toward the 1.3470 level as reduced demand for the Greenback provided support for the British pound. Sterling remained relatively resilient despite ongoing concerns about the United Kingdom’s fiscal position and slowing economic growth.
In Japan, USD/JPY traded near 159.30. While elevated US Treasury yields continued to offer support to the pair, a softer Dollar limited further gains. The Japanese yen remained under pressure after Tokyo Core CPI slowed to 1.4% year-over-year in May. Additionally, Kazuo Ueda cautioned that energy-related shocks could become more persistent if they begin influencing wages and inflation expectations.
The AUD/USD pair rose toward 0.7190, benefiting from stronger risk sentiment as progress in US-Iran negotiations encouraged demand for growth- and commodity-linked currencies.
In the commodities market, West Texas Intermediate (WTI) crude oil traded near $88 per barrel. Expectations of an extended ceasefire and the potential reopening of the Strait of Hormuz helped ease concerns over supply disruptions, limiting upward pressure on oil prices.
Despite the improved risk backdrop, gold rallied toward the $4,550 area as investors continued to balance optimism over geopolitical developments against lingering uncertainty and persistent global inflation risks. The precious metal remained supported by its role as a hedge against both inflation and geopolitical instability.
Looking Ahead: Key Economic Insights on the Horizon
Market participants will closely monitor a series of speeches and events involving major central bank officials in the coming days, seeking fresh clues on the outlook for interest rates, inflation, and economic growth.
Friday, May 29
Catherine Mann (Bank of England)
Sunday, May 31
Megan Greene (Bank of England)
Christopher Waller (Federal Reserve)
Jerome Powell (Federal Reserve)
Tuesday, June 2
Boris Vujčić (European Central Bank policymaker)
Andrew Bailey
Olaf Sleijpen (European Central Bank policymaker)
Megan Greene
Wednesday, June 3
Kazuo Ueda
Frank Elderson
Michael Barr
Piero Cipollone
Bank of England Monetary Policy Report Hearings
Federal Reserve Beige Book release
Thursday, June 4
Christine Lagarde
Andrew Bailey
Friday, June 5
Swati Dhingra
Andrew Bailey
The week’s schedule places particular emphasis on comments from the Federal Reserve, European Central Bank, Bank of England, and Bank of Japan, with investors looking for signals on the future path of monetary policy. Remarks from Powell, Lagarde, Bailey, and Ueda, alongside the Fed’s Beige Book and the BoE’s policy hearings, could have a significant impact on currency, bond, and equity markets.
Central Bank Meetings and Key Economic Data Set to Drive Markets
Investors will face a busy week of economic data and policy-related events, with releases from China, the Eurozone, the United States, Canada, Australia, Japan, New Zealand, and Switzerland likely to influence expectations for growth, inflation, and interest rates.
Friday, May 29
China Manufacturing PMI
China Non-Manufacturing PMI
Sunday, May 31
Australia TD-MI Inflation Gauge
China Caixin Manufacturing PMI
Monday, June 1
Eurozone Retail Sales
Switzerland Retail Sales
Switzerland GDP
Germany Manufacturing PMI
France Manufacturing PMI
Eurozone Manufacturing PMI
Eurozone Unemployment Rate
Canada Manufacturing PMI
US Manufacturing PMI
Australia Building Permits
Tuesday, June 2
Eurozone CPI Inflation
US JOLTS Job Openings
New Zealand Building Permits
Australia AiG Industry Index
Australia PMI
Australia Q1 GDP
China Caixin Services PMI
Wednesday, June 3
Spain Services PMI
Germany Services PMI
Eurozone Services PMI
Eurozone Producer Price Index (PPI)
US ADP Employment Change (4-week average)
US Services PMI
US Factory Orders
Australia Trade Balance
Thursday, June 4
Switzerland CPI Inflation
Eurozone Retail Sales
US Challenger Job Cuts
US Initial Jobless Claims
US Nonfarm Productivity
US Unit Labor Costs
Japan Labor Cash Earnings
Friday, June 5
Eurozone GDP
Eurozone Employment Change
Canada Employment Report
Canada Average Hourly Wages
Canada Unemployment Rate
US Nonfarm Payrolls (NFP)
US Unemployment Rate
US Average Hourly Earnings
US Labor Force Participation Rate
Canada Ivey PMI
Among the week’s highlights, investors will pay particular attention to Eurozone CPI, Australia’s first-quarter GDP, US JOLTS job openings, ADP employment data, and especially Friday’s US Nonfarm Payrolls report, which could provide critical insight into labor market conditions and influence expectations for future monetary policy decisions. The combination of inflation, growth, and employment data is likely to play a key role in determining the direction of major currencies, equities, bonds, and commodities throughout the week.
This QuickTakes update on gold highlights that prices are holding above the 200-day moving average after reports that Iran and the US agreed on a memorandum of understanding to extend their ceasefire for another 60 days, although Reuters noted that President Donald Trump has not yet approved the deal.
Gold reached a record high of $5,318 per ounce on January 29 before plunging during the Middle East conflict in March, touching $4,375 near month-end. Prices later recovered through mid-April as the ceasefire held. Currently, gold appears to be testing key technical support around the March 26 low, the 200-day moving average, and the intermediate uptrend line. In our view, this cluster of support levels should remain intact.
The decline in gold prices since late January has pushed the metal back into the upward-sloping trading channel that has been in place since late 2023 (chart). Traders may be viewing the proposed 60-day ceasefire extension as a sign that neither Iran nor the US is willing to reignite the military conflict.
Gold’s upward trend is expected to regain momentum once the conflict comes to an end. We currently forecast gold prices reaching $5,500 by year-end and climbing toward $10,000 by the end of the decade. During the war, the US Dollar strengthened in foreign-exchange markets, creating headwinds for gold. At the same time, rising interest rates added further pressure, which is typically negative for the precious metal.
Some central banks were also compelled to sell portions of their gold reserves to stabilize their currencies as surging oil prices weakened exchange rates. Meanwhile, the Federal Reserve is expected to maintain a more hawkish stance through the summer, potentially limiting any major upside move in gold in the near term. Once the war concludes, however, many of these bearish pressures are likely to fade.
Our long-term bullish outlook for gold is based on the expectation that the S&P 500 could climb to 10,000 by the end of the decade. As equities continue to rise, we believe investors are likely to diversify part of their portfolios into alternative assets, including gold. Historically, the S&P 500 and gold prices have often moved inversely over shorter cyclical periods, while tending to advance together over longer-term trends (chart). Therefore, if the S&P 500 eventually reaches the 10,000 mark, we believe gold prices could also rise toward $10,000.
The US Dollar Index (DXY) rises toward 99.50 as Iran’s strikes on US military bases reignite tensions between Washington and Tehran. The Islamic Revolutionary Guard Corps (IRGC) warned of stronger retaliation if the US launches further attacks. Meanwhile, markets are increasingly pricing in a hawkish Federal Reserve stance, with the probability of at least one Fed rate hike this year climbing above 50%.
The US Dollar (USD) attracts strong buying interest during Thursday’s Asian session after Iran retaliated against recent US strikes near Bandar Abbas airport, according to Tasnim news agency.
At the time of writing, the US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, is up around 0.25% on the day and trading near the 99.50 level. The renewed escalation in US-Iran tensions has boosted demand for safe-haven assets, supporting the USD.
Iran’s Islamic Revolutionary Guard Corps (IRGC) stated that it had launched attacks on US military bases and warned that any further US aggression would trigger an even “more decisive” military response.
The IRGC had previously pledged retaliation following Wednesday’s so-called “defensive strikes” by the US Central Command, which targeted Iranian boats allegedly involved in deploying naval mines.
The renewed military confrontation between Washington and Tehran has sharply weakened hopes for a lasting peace agreement. Iran’s counterattacks have also fueled a strong rebound in oil prices, raising concerns about higher inflation and prompting traders to increase expectations of a more hawkish Federal Reserve (Fed) stance.
According to the CME FedWatch Tool, markets currently see a 43.1% probability that the Fed will keep interest rates unchanged through the year, while the remaining expectations point toward at least one rate hike. This marks a major shift from earlier market expectations that anticipated two rate cuts before the conflict escalated.
Looking ahead, investors are closely watching the release of the US April Personal Consumption Expenditures (PCE) Price Index data at 12:30 GMT. The Fed’s preferred inflation measure is forecast to rise 3.8% year-over-year, compared with the previous reading of 3.5%.
WTI attracts strong buying interest during the Asian session after fresh US strikes on Iran.
In retaliation, Iran’s IRGC launched attacks on a US airbase and warned of a stronger response ahead.
However, a sharp rise in US Dollar demand could limit further gains in crude oil prices ahead of key US economic data releases.
West Texas Intermediate (WTI), the US benchmark for crude oil, edges higher during Thursday’s Asian session and recovers a large portion of the previous day’s decline, which had dragged prices to their lowest level since April 21. The commodity climbed to a fresh intraday high in the past hour and is attempting to push back above the $91.00 level amid fears of a broader escalation in the Middle East conflict.
According to Reuters, the US launched fresh overnight strikes on an Iranian military facility believed to pose a threat to American forces and commercial shipping in the Strait of Hormuz. Meanwhile, Iran’s Islamic Revolutionary Guard Corps (IRGC), cited by Tasnim news agency, said it had targeted a US airbase in retaliation for an attack near Bandar Abbas airport and warned that any further US aggression would provoke a “more decisive” response. The rising geopolitical tensions continue to support crude oil prices by keeping the market’s risk premium elevated.
At the same time, US President Donald Trump stated that he was dissatisfied with the current terms of negotiations with Iran and stressed that he would not rush into an agreement, reducing optimism for a diplomatic resolution to the three-month-long conflict. In addition, shipping activity through the Strait of Hormuz remains constrained due to Iranian movement restrictions and a US naval blockade on Iranian ports. Further underpinning oil prices, data from the American Petroleum Institute showed that US crude inventories declined for a sixth consecutive week.
Overall, the fundamental backdrop continues to favor bullish sentiment in the oil market and reinforces the near-term positive outlook for crude prices. However, a sharp rebound in the US Dollar could limit additional upside, as a stronger greenback typically weighs on demand for dollar-denominated commodities. Traders are now turning their attention to upcoming US economic releases, including the Personal Consumption Expenditures (PCE) Price Index and the preliminary first-quarter GDP report, for fresh market direction later in the North American session.
Silver weakens as renewed US-Iran tensions fuel inflation concerns and reinforce expectations of higher-for-longer interest rates. Iran claimed it struck a US F-35 fighter jet and multiple drones after Washington confirmed “self-defense” strikes in southern Iran. Meanwhile, investors continue to evaluate the Federal Reserve’s policy outlook after May consumer confidence fell amid rising inflation fears linked to the Middle East conflict.
Silver prices (XAG/USD) stayed under pressure for a second straight session, hovering near $76.90 per troy ounce during Wednesday’s Asian trading hours. The precious metal remained subdued amid renewed geopolitical tensions and uncertainty surrounding the strategically important Strait of Hormuz, although investors continued to watch for possible progress in US-Iran peace negotiations.
Market sentiment was shaken by fresh military confrontations in the Middle East, heightening concerns over a potential energy-driven inflation surge. These fears reinforced expectations that major central banks may maintain restrictive monetary policies for a longer period.
The US military confirmed carrying out self-defense strikes in southern Iran, while Iran’s Revolutionary Guard stated it had targeted an American F-35 fighter jet along with several drones allegedly entering Iranian airspace.
Adding to tensions, Iran’s foreign ministry condemned the recent US airstrikes in Hormozgan province, calling them a “gross violation” of the fragile seven-week ceasefire. Iranian media also reported explosions across the region early Tuesday.
Investors are also evaluating the Federal Reserve’s policy outlook, a key driver for non-yielding assets such as silver. The US Consumer Confidence Index slipped to 93.1 in May from a revised 93.8 in April, as concerns over inflation tied to the Iran conflict weighed on sentiment. Although consumers remained pessimistic about current labor market conditions, many still expected improvement later in the year.
Attention is now turning to upcoming comments from Federal Reserve officials, including Vice Chair Philip Jefferson and Governor Lisa Cook, for further insight into the inflation and interest-rate outlook. Traders are also awaiting Thursday’s US Personal Consumption Expenditures (PCE) report, which could provide additional clues on the future path of Fed policy.
WTI advances amid renewed supply concerns after US self-defense strikes in southern Iran on Monday. President Donald Trump said talks on a deal with Iran are “proceeding nicely,” though he warned that failed negotiations could lead to fresh military action. Meanwhile, three LNG tankers and a previously stranded Iraqi crude supertanker have recently transited the Strait of Hormuz en route to Asia.
West Texas Intermediate (WTI) crude oil prices rebounded during Tuesday’s Asian session, recovering from four consecutive daily losses to trade near $90.60 per barrel. The recovery was driven by renewed concerns over supply disruptions after US forces carried out self-defense strikes in southern Iran on Monday.
According to Fox News, a spokesperson for US Central Command said the strikes targeted missile launch sites and Iranian vessels allegedly attempting to deploy naval mines. While Washington reaffirmed its commitment to protecting US personnel, officials also stressed that the military would continue exercising restraint under the current ceasefire arrangement. Iranian media outlets reported explosions in and around the coastal city of Bandar Abbas near the Strait of Hormuz.
Despite Tuesday’s rebound, WTI had plunged more than 6% on Monday after Bloomberg reported that US President Donald Trump said negotiations with Iran aimed at ending the conflict and reopening the Strait of Hormuz were “proceeding nicely.” Trump nevertheless warned that a breakdown in talks could prompt renewed military action, although reports suggested that a Pakistani mediator had informed China that an agreement was close.
The US and Iran are currently negotiating a framework that would extend the ceasefire for roughly two months. Under the proposed arrangement, Washington would ease its maritime blockade while Tehran would reopen the Strait of Hormuz.
Both sides have reportedly made progress toward a memorandum of understanding intended to pause hostilities and grant negotiators a 60-day window to finalize a broader peace agreement. Supporting signs of tentative de-escalation, ship-tracking data showed that three LNG tankers recently transited the strait en route to Pakistan, China, and India. In addition, a supertanker carrying Iraqi crude oil resumed its voyage to China after being stranded for nearly three months.
A potential agreement between President Donald Trump and Iran is beginning to reshape market expectations, with investors increasingly anticipating a rally in stocks, weaker oil prices, and stronger bond performance if tensions in the Middle East continue to ease.
For months, global markets have been heavily influenced by geopolitical risk. Traders feared disruptions in the Strait of Hormuz, while investors worried that surging crude oil prices would reignite inflation pressures and force central banks to maintain higher interest rates for longer.
That narrative may now be changing.
Trump recently stated that negotiations with Iran are largely complete, with discussions focused on restoring stability in the Gulf region and reopening key shipping routes. Markets quickly responded to the possibility of reduced geopolitical tension.
Brent crude prices have already started to decline as optimism surrounding the negotiations grows. Investors recognize that easing tensions could reduce the geopolitical premium embedded in oil markets. If supply concerns diminish and shipping routes normalize, energy prices would likely continue falling. Lower oil prices would, in turn, help cool inflation expectations, reduce pressure on bond yields, and improve conditions for equities.
Markets understand the broader chain reaction.
At the peak of the Iran crisis, investors were preparing for a far more severe scenario in which oil prices could surge above $120 per barrel. Such a move would have intensified global inflation, pressured consumers, hurt corporate profit margins, and complicated the outlook for central banks already navigating slowing economic growth.
A credible diplomatic breakthrough would dramatically improve that outlook.
Bond markets could become one of the biggest beneficiaries. Treasury yields have already begun drifting lower alongside softer oil prices as optimism over negotiations increases.
Lower yields would also provide support for growth-oriented sectors, particularly technology and AI-related stocks, which have struggled amid elevated financing costs and geopolitical uncertainty.
Several sectors stand to gain from falling energy prices and easing interest rates, including airlines, transportation companies, industrial firms, consumer discretionary businesses, and rate-sensitive technology stocks.
Emerging markets could also recover strongly. Many developing economies faced pressure from higher energy import costs and a stronger U.S. dollar during the recent period of instability. Reduced geopolitical stress could help reverse some of those pressures.
At the same time, the U.S. dollar may weaken somewhat as safe-haven demand declines and investor confidence improves.
Still, volatility is unlikely to disappear completely.
Negotiations with Iran have failed before, and political resistance within Washington remains significant. Regional tensions also remain elevated, while critical issues such as sanctions relief, nuclear commitments, and enforcement mechanisms still need to be resolved.
Markets are well aware that geopolitical agreements can unravel quickly.
However, investors trade on probabilities rather than certainty. Right now, markets are increasingly pricing in a scenario where one of the largest geopolitical risks facing the global economy begins to ease instead of escalate.
If Trump ultimately secures a workable agreement with Iran, the impact across global asset classes could be substantial: higher equities, lower oil prices, and stronger bond markets.
After months dominated by fears of energy shocks and renewed inflation pressure, investors may finally be seeing a path toward relief.
WTI extends gains for a third consecutive session as escalating tensions with Iran intensify concerns over potential supply disruptions. President Trump’s latest warning to Iran has heightened fears of a deeper conflict in the Middle East, though a stronger US Dollar may limit further upside in the USD-denominated commodity.
West Texas Intermediate (WTI), the US benchmark for Crude Oil, extends its rally for a third straight session and reaches a two-week high during Monday’s Asian trading hours. The commodity is currently trading near $102.30, gaining around 1.35% on the day, with bullish momentum supported by escalating geopolitical tensions.
In a post on Truth Social, US President Donald Trump warned Iran that “the clock is ticking” and cautioned that there “won’t be anything left” unless action is taken soon, emphasizing that “time is of the essence.” Adding to market concerns, The Times of Israel reported on Saturday that Israel and the US are actively preparing for the possibility of renewed coordinated military strikes against Iran. These developments have heightened fears of a broader Middle East conflict, providing further support for Crude Oil prices.
At the same time, negotiations between the US and Iran remain deadlocked due to major disagreements surrounding Tehran’s nuclear program. Ongoing US restrictions on Iranian ports, along with the effective closure of the Strait of Hormuz, continue to keep a geopolitical risk premium embedded in the market. Concerns over potential disruptions to global Oil supply are also reinforcing bullish sentiment and supporting the recent rebound from monthly lows below $87.00.
However, the stronger US Dollar (USD) could limit additional gains in Oil prices, as a firmer Greenback typically weighs on demand for USD-denominated commodities. Amid renewed US-Iran tensions, expectations that the Federal Reserve may raise interest rates in 2026 have pushed the US Dollar Index (DXY) to its highest level since April 7, potentially discouraging traders from aggressively extending bullish positions in Crude Oil.
WTI edged lower after Iranian media reported that 30 vessels had successfully passed through the Strait of Hormuz. Still, crude remains on track for a weekly gain of more than 6% as stalled US-Iran negotiations continue to disrupt traffic through the key shipping route. Meanwhile, the White House noted that President Xi could increase purchases of US oil, potentially helping China reduce its dependence on the Strait of Hormuz.
West Texas Intermediate (WTI) crude remained under pressure on Friday during Asian trading, hovering near $97.60 per barrel after posting modest gains in the previous session. Despite the pullback, WTI is still set for a weekly increase of more than 6%, as diplomatic negotiations aimed at ending the conflict between the United States and Iran continue to stall, leaving the critical Strait of Hormuz effectively shut down.
Oil prices eased slightly after Iranian state media reported that 30 ships had successfully passed through the Hormuz Strait. Nevertheless, investor concerns remain elevated amid ongoing vessel seizures and attacks in the region.
The so-called “dual blockade” of the strategic waterway has become a major obstacle in peace discussions. US President Donald Trump recently described the ceasefire as being on “massive life support” after rejecting Tehran’s latest response to his proposed peace framework.
Meanwhile, a possible change in global energy trade dynamics emerged after a two-hour meeting in Beijing between Presidents Trump and Xi Jinping. According to the White House, Xi signaled interest in increasing Chinese purchases of US crude oil in an effort to diversify energy imports and reduce dependence on the unstable Strait of Hormuz route.
Still, the broader supply outlook remains concerning. The International Energy Agency (IEA) said oil and fuel shipments through the Strait fell by roughly 4 million barrels per day during March and April. The agency also cautioned that even if the conflict is resolved next month, global oil markets may continue facing significant supply shortages through October.
Gold prices traded sideways during Thursday’s Asian session as investors remained cautious ahead of the Trump–Xi summit in Beijing. US President Donald Trump arrived in China for talks with Xi Jinping, with trade tensions and the Iran conflict expected to dominate discussions. Meanwhile, US producer inflation surged at its fastest yearly pace in four years, lending support to the US Dollar.
Gold prices remained largely unchanged during Thursday’s Asian session as investors stayed cautious ahead of the summit between US President Donald Trump and Chinese President Xi Jinping in Beijing. Market attention is also turning to the upcoming US April Retail Sales data due later in the day.
According to Bloomberg, Trump arrived in Beijing on Wednesday for the first state visit to China by a US president in nine years. The meeting comes as Washington and Beijing attempt to stabilize relations amid ongoing geopolitical tensions linked to the Iran conflict.
The US and China are reportedly exploring a framework that would allow both countries to reduce tariffs on approximately $30 billion worth of goods without compromising national security concerns.
Meanwhile, US producer inflation rose at its fastest annual pace in four years, strengthening expectations that the Federal Reserve will keep interest rates elevated to contain persistent inflation pressures.
Data from the US Bureau of Labor Statistics released on Wednesday showed that the Producer Price Index (PPI) climbed 6.0% year-over-year in April, up from 4.3% in March and above market forecasts of 4.9%. On a monthly basis, PPI increased 1.4% after a 0.7% gain in March, significantly exceeding expectations of 0.5%.
Wholesale inflation reached its highest level since December 2022, largely driven by surging oil prices amid Middle East tensions. The stronger inflation data reinforced expectations that the Federal Reserve will maintain higher interest rates for longer, which could pressure Gold prices. Although Gold is often viewed as a safe-haven asset during geopolitical uncertainty, higher interest rates reduce its appeal because the metal does not offer yield.
Gold Daily Chart
Technical Analysis
On the daily chart, XAU/USD is trading near $4,690 and continues to show a slightly bearish tone while remaining below the 100-day simple moving average (SMA). The metal is hovering just above the Bollinger Band midpoint, indicating short-term support within the current trading range. Meanwhile, the Relative Strength Index (RSI) stands at 49.65, reflecting neutral momentum and signaling consolidation rather than a strong directional move.
To the upside, the first resistance level is located near the 100-day SMA around $4,790. Additional gains could face resistance near the upper Bollinger Band at roughly $4,838 if bullish momentum strengthens further. On the downside, initial support is found around the Bollinger midpoint near $4,680, followed by a stronger support area close to the lower Bollinger Band around $4,518, where any deeper correction may begin to stabilize.
WTI prices climb toward $95.70 during Tuesday’s early Asian trading session, supported by rising US-Iran tensions and growing concerns over potential disruptions in the Strait of Hormuz. Meanwhile, markets are also watching as Trump is expected to arrive in Beijing later this week.
West Texas Intermediate (WTI), the US crude oil benchmark, is trading near $95.70 during Tuesday’s early Asian session, extending gains as renewed geopolitical tensions in the Middle East support oil prices.
According to CNN, US President Donald Trump has become increasingly dissatisfied with Iran’s approach to negotiations aimed at ending the conflict. Some of Trump’s advisers reportedly believe he is now more open to restarting major military operations than at any point in recent weeks.
At the same time, Iranian Parliament Speaker Mohammad Bagher Ghalibaf stated that Iran’s military is fully prepared to respond to any future attacks. The remarks followed Trump’s rejection of Tehran’s latest peace proposal over the weekend, describing it as “simply unacceptable.” Concerns over a potential prolonged disruption of the Strait of Hormuz — a key global energy shipping corridor — continue to provide support for WTI prices.
Meanwhile, Trump and Chinese President Xi Jinping are expected to meet on Thursday and Friday during Trump’s first visit to China since 2017. The two leaders are set to hold their first in-person talks in more than six months as both sides attempt to ease tensions linked to trade disputes, the US and Israeli conflict with Iran, and broader geopolitical disagreements.
Market participants are also awaiting the release of the American Petroleum Institute (API) crude oil inventory report later on Tuesday. A larger-than-expected decline in inventories could signal stronger demand and further support WTI prices, while a surprise increase in stockpiles may point to weaker demand or oversupply, potentially pressuring crude prices.
USD/CAD advances as escalating Middle East tensions strengthen the US Dollar’s appeal as a safe-haven currency.
President Trump has expressed growing frustration over the lack of progress in peace negotiations, raising concerns about a possible change in the region’s conflict approach.
Meanwhile, higher oil prices provide support for the Canadian Dollar, though they also create challenges for the Bank of Canada by adding to ongoing inflation pressures.
USD/CAD edges higher after closing nearly unchanged in the previous session, hovering around 1.3690 during Tuesday’s Asian trading hours. The pair is regaining upward momentum as the US Dollar strengthens amid escalating geopolitical tensions.
Investor sentiment has shifted toward safe-haven assets following reports of worsening diplomatic conditions in the Middle East. Markets are increasingly pricing in the risk of renewed large-scale military conflict, a development that typically drives demand for the Greenback against more risk-sensitive currencies.
A CNN report published Monday stated that US President Donald Trump has become increasingly dissatisfied with the lack of progress in negotiations aimed at ending regional hostilities. Sources close to the administration indicated that Washington is now giving more serious consideration to renewed military operations. Adding to market concerns, Iranian Parliament Speaker Mohammad Bagher Ghalibaf said, according to Reuters, that Iran’s armed forces are fully prepared to respond to any future attacks, placing the already fragile ceasefire under additional pressure.
Despite broad USD strength, the Canadian Dollar continues to receive support from rising oil prices. As Canada is the largest crude supplier to the United States, the CAD tends to benefit from gains in energy markets. Concerns that escalating regional tensions could disrupt global supply flows and reduce Middle Eastern exports have pushed crude prices sharply higher, helping cap further upside in USD/CAD.
At the same time, surging energy prices are reviving inflation concerns in Canada. March inflation data already reflected the impact of volatile oil prices, with annual CPI rising to 2.4%, the highest level seen in a year. While elevated crude prices generally strengthen the CAD, they also complicate the Bank of Canada’s policy outlook. Although the BoC recently kept interest rates unchanged and suggested that energy-related inflation may remain temporary, a prolonged geopolitical conflict could eventually force policymakers to reconsider their current stance.
The precious metal has been supported by speculation of a potential de-escalation in Middle East tensions.
At the same time, markets are also reacting to reports that the US and Japan could pursue coordinated currency intervention.
The US dollar recovered from earlier selling pressure amid lingering uncertainty over a rapid resolution to the Middle East conflict, alongside stronger-than-expected US economic data. ADP reported a 109K increase in private sector employment in April, marking the strongest reading since the beginning of 2025. The resilience in the labour market, combined with persistent inflation pressures, helped the DXY rebound 0.5% from its intraday lows, recovering roughly half of its earlier losses on Wednesday. However, the recovery proved short-lived.
Markets are also focused on renewed US–Iran diplomatic efforts, with talks expected to resume by 15 May. As often seen in geopolitics, markets tend to price in outcomes ahead of confirmation. Rumours of de-escalation initially pushed EUR/USD to its highest level since February near 1.1800, before subsequent uncertainty triggered a pullback.
At the same time, geopolitical risks are increasingly seen as more damaging for Europe than for the US. Additional pressure comes from renewed tariff threats by Donald Trump, including potential increases on European auto imports from 15% to 25%. Slowing growth combined with inflationary pressure from higher energy costs is raising stagflation concerns in the eurozone, forcing the ECB into a more cautious policy stance. Even if further rate hikes occur, they are expected to be limited, leaving interest rate differentials supportive of the US dollar and capping EUR/USD upside.
Beyond geopolitics, currency markets are also reacting to developments in Japan. While fundamentals favour a stronger US dollar versus the yen, any coordinated effort to weaken the dollar could impose significant strain on Tokyo. Discussions around possible joint intervention—drawing comparisons to the 1985 Plaza Accord—have resurfaced, with US officials expected to meet Japanese counterparts to discuss foreign exchange stability.
Meanwhile, gold has benefited from easing Middle East tensions, posting its strongest daily gain since late March. The metal is also supported by shifting inflation expectations following the decline in oil prices, which reduces the likelihood of aggressive Fed tightening into 2026. However, upcoming US data releases remain a key catalyst, and any downside surprise could provide fresh momentum for further upside in gold.
The conclusion of Operation Epic Fury is lifting risk sentiment.
Japan is expected to keep cracking down on speculators.
The US Dollar weakened after the White House announced the end of the two-month “Operation Epic Fury” and highlighted progress in talks with Iran. Markets are interpreting the developments as a sign of easing tensions in the Middle East, triggering a selloff in Brent crude and pushing the dollar index back toward two-month lows amid improving risk sentiment.
The more optimistic backdrop could support further gains in EUR/USD, though much will depend on how quickly oil prices decline. Damage to energy infrastructure across the Persian Gulf is expected to keep Brent and WTI well above the $65–70 range seen before the conflict erupted, maintaining underlying inflationary pressure.
US services PMI data continues to point to the strongest price pressures since 2022, while futures markets are increasingly pricing in the possibility of additional Fed tightening. That complicates any effort by Kevin Warsh to deliver the aggressive policy easing sought by Donald Trump. For now, however, traders remain focused almost entirely on developments in the Middle East.
The prospect of a ceasefire has already lifted EUR/USD toward 1.1760, and the pair could extend gains if de-escalation continues. On the other hand, a collapse in negotiations or renewed friction between the US and Iran would likely trigger a reversal, especially as Washington continues expanding its military presence in the Persian Gulf despite softer rhetoric.
Meanwhile, Wednesday’s sharp drop in USD/JPY has fuelled speculation that Japanese authorities intervened in the currency market again. Tokyo appears determined to discourage speculative dollar buying during periods of USD weakness.
Gold has also surged more than 3% on hopes of easing geopolitical tensions, climbing above $4,700. Lower oil prices reduce the risk of persistent inflation and lessen pressure on central banks to tighten policy further, potentially reviving demand for gold as a debasement hedge.
Gold draws buyers for a second consecutive session as optimism over a potential US–Iran peace agreement weakens the US dollar. Easing inflation concerns also dampen expectations of aggressive Fed tightening, supporting demand for the metal, while traders await the US ADP report for fresh direction ahead of Friday’s Nonfarm Payrolls release.
Gold (XAU/USD) holds firm near a more-than-one-week high, staying above $4,650 as the European session begins on Wednesday. A broadly weaker US Dollar—pressured by growing optimism over a potential US–Iran peace agreement—has supported the metal’s rebound from Monday’s one-month low around $4,500. At the same time, falling crude oil prices are easing inflation concerns and reducing expectations of a more aggressive Federal Reserve, further boosting demand for the non-yielding asset for a second consecutive day.
On the geopolitical front, US President Donald Trump announced a temporary pause in “Project Freedom,” the military effort to escort commercial vessels through the Strait of Hormuz, to allow room for negotiations with Iran. He noted meaningful progress toward a comprehensive deal, echoing earlier remarks from Defense Secretary Pete Hegseth that the US is not seeking renewed escalation and that the ceasefire with Iran remains intact. Additionally, Secretary of State Marco Rubio confirmed the conclusion of “Operation Epic Fury,” a joint US–Israel campaign launched on February 28.
These developments have strengthened expectations of a peace agreement that could end the US-Israeli conflict involving Iran and reopen the strategically crucial strait, lifting investor sentiment while weighing on the dollar’s appeal. Meanwhile, oil prices have dropped to a one-week low, helping to curb fears of rising inflation and allowing the Fed to maintain a more cautious policy stance. Still, according to CME Group’s FedWatch Tool, markets are pricing in more than a 35% chance of a rate hike by year-end, which may limit further downside in the USD and cap gold’s near-term upside.
Given this backdrop, traders may wait for stronger follow-through buying before confirming that gold has formed a bottom near $4,500 and positioning for additional gains. Attention now turns to the US ADP private employment report later in the North American session, along with remarks from key FOMC officials and ongoing geopolitical updates. The primary focus, however, remains Friday’s closely watched US Nonfarm Payrolls report, which is expected to play a decisive role in shaping the near-term outlook for both the dollar and gold.
Gold H4
Gold bulls remain in control as long as prices hold above the 200-period SMA breakout level on the H4 chart. The metal’s solid rebound from the $4,500 region—near the 50% retracement of the March–April rally—combined with a move above $4,600, supports a bullish outlook. Prices are now approaching the 200-period SMA at $4,651.69, which serves as the next key resistance.
Momentum indicators reinforce the positive bias. The RSI sits around 59, suggesting steady strength without entering overbought territory, while the MACD histogram remains positive and continues to rise, pointing to building bullish momentum as gold tests overhead resistance.
On the downside, immediate support is located at the 38.2% Fibonacci retracement level around $4,588.83. Further declines could find buying interest near the 50% level at $4,495.62, followed by the 61.8% retracement around $4,402.41. A decisive break below this last level would invalidate the bullish setup and shift the near-term outlook back in favor of the bears.
As the U.S. conflict with Iran moves into its third month, markets have largely steadied following early fears of disruption to the energy sector and oil prices. Still, the evolving political landscape—including a ceasefire that has been in place since early April—continues to inject a high degree of uncertainty. Should the truce break down and tensions escalate again, investors could see renewed volatility.
One approach to navigating this uncertainty is through exchange-traded funds (ETFs), which offer exposure to sectors that may benefit from shifting conditions. Below are two funds to consider, depending on whether your outlook on developments in the Middle East is more optimistic or cautious.
A Cost-Effective, Highly Liquid Way to Gain Crude Oil Exposure
The United States Oil Fund LP is among the most widely used exchange-traded products for investors seeking exposure to oil. Structured as a commodity pool, USO invests in oil futures contracts to mirror daily price movements of light, sweet crude—an oil type that dominates production in the U.S., making the fund closely linked to the domestic energy market.
USO carries an expense ratio of 0.60%, which is relatively low compared to many similar funds. It also stands out for its strong liquidity, with an average monthly trading volume exceeding 27 million shares. Although it isn’t the largest fund by assets—managing roughly $1.9 billion—it remains highly active in the market.
These characteristics make USO especially appealing for short-term traders. Its ability to capture near-term price swings in crude oil is a key advantage, though its reliance on futures contracts exposes it to contango, which can erode returns over time. As such, it may not be the best choice for long-term, buy-and-hold strategies tied to developments in the Iran conflict.
That said, if oil prices continue climbing—something that could happen if the ceasefire collapses and tensions escalate—USO offers a practical way for investors to capitalize on that upward movement.
An Airline-Focused ETF Positioned to Rebound if Fuel Markets Stabilize
Investors anticipating a de-escalation in geopolitical tensions may turn their attention to one of the sectors hit hardest by the conflict: aviation. Airlines have faced mounting challenges, from volatile jet fuel costs and supply constraints to disruptions in routes and operations driven by regional instability.
The U.S. Global Jets ETF tracks a basket of companies tied to the air travel industry, encompassing not just airlines but also firms involved in aircraft manufacturing, maintenance, and related services.
While the fund has global exposure, it leans heavily toward U.S.-based companies and includes many of the world’s largest carriers. Major holdings such as Delta Air Lines, American Airlines, and United Airlines together account for roughly one-third of its portfolio.
JETS stands out for its pure focus on aviation, unlike broader transportation ETFs. This specialization could make it particularly attractive to investors who expect improving diplomatic relations between the U.S. and Iran. However, its year-to-date performance—down around 8% in 2026—suggests that tensions have yet to ease meaningfully.
The fund carries an expense ratio comparable to that of USO and manages a relatively modest asset base of about $725 million, along with lower trading volumes—typical for a niche ETF. It also pays a dividend, though with a yield of roughly 0.5%, income generation is more of a secondary benefit than a primary draw.
More broadly, a sustained ceasefire or an end to the conflict could lift a range of ETFs. Industries with high sensitivity to oil prices would likely see the strongest upside. Even diversified funds focused on developed or emerging markets could benefit if key shipping routes like the Strait of Hormuz reopen and global trade flows return to normal, helping stabilize both energy markets and the wider economy.
WTI weakens as concerns over supply disruptions subside, with the US Navy taking steps to reopen the Strait of Hormuz.
Maersk reported that its US-flagged vehicle carrier, Alliance Fairfax, successfully transited the strait under US military escort.
Meanwhile, Iran launched drone and missile attacks on the UAE, and the US stated it had destroyed Iranian boats in the Hormuz region.
West Texas Intermediate (WTI) crude edges slightly lower during Tuesday’s Asian session, hovering near $101.80 per barrel after posting modest gains a day earlier. Prices are under pressure as immediate supply disruption fears ease, with the United States Navy working to restore traffic through the crucial Strait of Hormuz following Iran’s attempted shutdown.
On Monday, Washington initiated a fresh operation to reopen the waterway, and Maersk later confirmed that its US-flagged vehicle carrier, Alliance Fairfax, successfully exited the strait under US military escort.
According to Reuters, Tim Waterer, chief market analyst at KCM Trade, noted in an email that the incident demonstrates limited safe passage is still possible under current conditions, easing worst-case supply concerns. However, he cautioned that it appears to be an isolated case rather than a sign of a full reopening.
Even so, tensions remain elevated after Iran launched drone and missile strikes on the United Arab Emirates (UAE). CNBC reported that the US also destroyed Iranian boats in the Strait of Hormuz. US President Donald Trump warned that Iran would face severe consequences if it targeted American ships protecting commercial traffic in the area.
Meanwhile, Iran’s Foreign Minister Abbas Araghchi stated that the situation in the Strait of Hormuz underscores the absence of a military solution to what he described as a political crisis. He added on X that as diplomatic efforts—supported by Pakistan—continue, the US should avoid being drawn deeper into conflict, warning that “Project Freedom is Project Deadlock.”
Bitcoin fell on Wednesday after the Federal Reserve kept interest rates unchanged and indicated it may maintain this stance to counter inflation risks stemming from Middle East tensions. Renewed diplomatic friction between the U.S. and Iran further dampened market sentiment, pushing the world’s largest cryptocurrency down about 1% to $75,632 by late trading.
Fed holds rates
The Federal Reserve kept its benchmark interest rate unchanged at 3.50%–3.75%, in line with expectations, but the decision drew the most dissent since October 1992. One official favored a 25-basis-point cut, while three others opposed signaling any easing bias for now.
The move comes as rising oil prices linked to Middle East tensions continue to pressure U.S. inflation, while the labor market remains subdued with low hiring and firing activity—making policy decisions more complex. In his press conference, Jerome Powell said the Fed is in a “good place” to either raise or cut rates depending on how inflation evolves, particularly from energy shocks.
He also indicated he will remain a Fed governor after his term as chair ends. This comes as the Senate advances Kevin Warsh, his potential successor, toward a full confirmation vote. Prolonged higher interest rates are typically a headwind for risk assets like cryptocurrencies.
Trump moves to extend the Iran blockade long-term, turning down Tehran’s proposal.
Donald Trump is reportedly pursuing a long-term blockade strategy against Iran, favoring sustained economic pressure over renewed military action or withdrawal, according to a The Wall Street Journal report. This comes after the U.S. rejected a three-step proposal from Tehran that would have reopened the Strait of Hormuz while postponing nuclear talks, with Trump considering the offer inadequate.
In comments to Axios, Trump described the blockade as potentially more effective than airstrikes and reaffirmed his stance against lifting it, citing concerns over Iran’s nuclear ambitions. Meanwhile, Axios reported that U.S. Central Command has drafted a plan for a brief but intense round of strikes to break the negotiation impasse.
Trump also criticized Iran on social media, urging faster progress toward a non-nuclear agreement, alongside a provocative post emphasizing a tougher stance. The ongoing closure of the Strait of Hormuz pushed oil prices higher on Wednesday.
Despite these macro pressures—including rising oil prices, increased liquidations, and expectations of prolonged high interest rates—Bitcoin has remained relatively stable. According to analyst Iliya Kalchev from Nexo Dispatch, this resilience may indicate that weaker market participants have already exited, or that the market is consolidating ahead of a major catalyst that could determine its next move.
Most altcoins moved lower alongside Bitcoin on Wednesday. The second-largest cryptocurrency, Ethereum, dropped 2.2% to $2,241.03, while XRP, ranked third, fell 1.3% to $1.3620. Solana and Cardano also declined by 1.4% and 1.8%, respectively. Among meme coins, Dogecoin reduced part of its earlier gains but was still up 2.6% at last check.
As of now, the Strait of Hormuz has effectively been shut since February 28, halting about 20% of global seaborne oil flows through this critical passage. The International Energy Agency called it “the largest supply disruption in the history of the global oil market.” Producers in the Gulf have curtailed nearly 9 million barrels per day, while U.S. gasoline prices have surged from $2.98 to above $4.00 per gallon.
Historically, shocks of this magnitude—1973, 1979, 1990—have delivered stagflationary blows severe enough to rattle markets. But after decades of observing market cycles, one lesson stands out: when price action refuses to validate a crisis narrative, it’s often because markets are factoring in dynamics that headlines overlook. That seems to be the case with Hormuz today.
Brent crude briefly spiked near $120 but has since eased to around $96, well below the $132 level projected by the Dallas Fed for a prolonged closure. Meanwhile, the S&P 500 continues to edge higher, and China—despite routing roughly a third of its crude imports through the strait—has remained resilient.
The real issue, then, isn’t why the worst-case forecasts missed the mark, but what they failed to account for—and where the true risks may now lie.
Why the Headlines Looked Worse Than the Reality
The “20% of global oil supply shut” narrative was always an oversimplification. In practice, the actual impact was cushioned by several key factors—each grounded in primary data and policy responses.
First, Gulf producers quickly rerouted a significant share of crude exports. According to estimates from Rystad Energy’s Tom Liles, around 5–6 million barrels per day could be diverted through pipeline networks in Saudi Arabia and the UAE, bypassing the Strait via outlets on the Red Sea and the Gulf of Oman. That’s roughly one-third of the region’s typical seaborne exports, reestablished within weeks rather than months.
At the same time, Iran quietly shifted from outright disruption to selective control. By late March, it allowed tankers from countries like China, Russia, India, Iraq, and Pakistan to pass. In effect, the “closure” functioned more as a rationing system than a complete blockade.
Second, strategic reserves performed exactly as intended. The International Energy Agency coordinated a record 400 million–barrel release, while the U.S. Strategic Petroleum Reserve alone contributed about 1.4 million barrels per day. As Bernstein analysts succinctly noted, the goal wasn’t to fully replace lost supply—it was to buy time. And it did just that, bridging the gap while alternative logistics ramped up and demand began to soften.
Third, China entered the الأزمة in a position of strength. Data from the U.S. Energy Information Administration showed commercial inventories approaching 1 billion barrels before February 2026, alongside an additional 360 million barrels in state reserves. That buffer equates to several months of imports, meaning Beijing had both the stockpile and the policy flexibility to weather disruptions—especially when paired with Iran’s selective transit allowances.
Taken together, these factors explain why the real-world impact fell far short of the initial shock implied by the headlines.
Finally—and most critically—the United States is structurally very different from what it was in the 1970s. Domestic crude output now exceeds 13 million barrels per day, providing a significant buffer against external supply shocks like those seen during the Arab Oil Embargo. In addition, LNG exports reached nearly 18 billion cubic feet per day in March, according to the EIA’s April Short-Term Energy Outlook. Less than 10% of U.S. crude imports pass through the Strait of Hormuz, meaning that in a global disruption, the U.S. acts more as a marginal supplier than a marginal victim.
Importantly, even the Dallas Fed’s worst-case scenario assumes the economic damage would be short-lived—limited to roughly one quarter, with an estimated 2.9 percentage point annualized drag on global real GDP. Current conditions appear much closer to the base-case outlook, which anticipated that rerouting, strategic reserves, and demand adjustments would absorb most of the shock. So far, that expectation has largely held true.
The Real Risk Lies on the Other Side
Here’s where the consensus may be misjudging the setup. If the bearish, crisis-driven oil narrative was overstated on the way in, the bullish case for oil at $96 may be equally overstated on the way out.
Once the Strait of Hormuz fully reopens, three forces are likely to hit the market simultaneously. Gulf producers could quickly bring back roughly 9 million barrels per day of shut-in supply, in line with EIA estimates. At the same time, tankers that have been sitting in storage will begin releasing cargoes, while U.S. shale—revitalized by prices near $95—continues operating at elevated output levels. Together, this creates a classic oversupply scenario.
The main counterbalance is the need to rebuild strategic reserves. More than 30 IEA member countries have drawn them down and will likely spend the latter half of 2026 replenishing stocks. Analysts at Kpler have pointed out that the back end of the oil futures curve appears undervalued, with late-2026 Brent priced around $74 compared to a fair value closer to $85.
That said, the direction may be right, but the scale could be off. Restocking demand will unfold gradually over several quarters, whereas supply can return within weeks. That mismatch is where the real risk of dislocation lies. A reasonable base case is for Brent to fall back toward the low $70s within about 90 days of a sustained ceasefire, with a meaningful chance of overshooting toward $60 if demand weakness—triggered by $4+ gasoline—persists.
This isn’t a call for a collapse in crude, but rather a recognition that the adjustment may be uneven. From current levels, upside appears limited, while the downside risk could be swift and pronounced.
The Market Has Already Pivoted to Earnings
It increasingly looks like markets have already absorbed the supply shock and moved on. Oil disruptions have been digested, and the focus has clearly shifted back to corporate earnings—and on that front, the data supports the bulls.
FactSet’s April 17 Earnings Insight shows that 88% of S&P 500 companies reporting so far have beaten first-quarter EPS expectations, well above the 10-year average of 76%. In aggregate, earnings are exceeding forecasts by 10.8%, compared to a historical norm of 7.1%. Looking ahead, analysts are now projecting around 18% earnings growth for full-year 2026. Barclays strategist Venu Krishna has already raised his 2026 EPS estimate to $321 from $305, while FactSet sees net margins reaching 13.9%—a record high. Earlier, Goldman Sachs highlighted this shift, noting that future index gains are likely to be driven primarily by earnings growth rather than multiple expansion.
Beyond that, the trend isn’t limited to 2026. Analysts are also revising 2027 earnings estimates upward, and at a pace that significantly exceeds historical norms.
That’s a genuinely constructive backdrop. Over time, equities tend to track earnings, and the strong Q1 beat rate points to real operational resilience. This isn’t a rally built on optimism alone—it’s being supported by actual results.
There are two important caveats, however.
First, forward earnings estimates almost always trend upward—until they don’t. Rising forward EPS is the norm during an expansion, not a uniquely bullish signal. What really matters is the turning point, and revisions typically roll over with a lag. As Goldman Sachs’ Ben Snider recently highlighted, much of the upward revision driving the S&P 500’s record levels has been concentrated in a narrow group of stocks, such as Exxon Mobil and Micron Technology. The median company in the index has seen minimal upgrades, suggesting this is a rally carried by a handful of leaders rather than broad-based improvement.
Second, valuations leave little room for error. The forward 12-month P/E ratio stands at 20.9—above both the 5-year average of 19.9 and the 10-year average of 18.9. At these levels, even strong earnings beats tend to generate only modest upside, while any disappointment—especially in forward guidance—can trigger sharp declines.
That makes the real test less about Q1 results and more about Q2 outlooks. If sectors like retail, travel, and discretionary begin lowering guidance as the impact of $4+ gasoline filters through consumer spending, forward estimates could finally start to roll over.
Until then, the path of least resistance for equities still appears to be upward.
How to Position From Here
I know not everyone will agree—and that’s fine. Markets exist because of differing views. But after decades of managing portfolios through shocks like this, here’s a practical way to think about positioning given the Strait of Hormuz dynamics and elevated equity valuations:
Don’t chase the oil rally. Crude right now is being driven more by geopolitics than underlying fundamentals. At around $96, the risk/reward for going long looks unfavorable. If you’re already holding energy names that have rallied 40% or more, it may make sense to lock in gains rather than press further. Adding exposure here increases downside risk if the setup reverses.
Favor infrastructure over raw exposure. Instead of betting on oil prices directly, consider energy infrastructure—midstream operators and LNG exporters. These businesses are less sensitive to spot price swings and tend to benefit from a global shift toward energy security. Their cash flows are generally more stable, even if Brent pulls back toward $70.
Respect equities—but don’t overextend. With the S&P 500 trading around 20.9x forward earnings, markets are not pricing in much room for error. It’s reasonable to acknowledge the strength, but avoid chasing it. Rebalancing—trimming outsized winners back to target weights—can help manage risk without abandoning exposure.
Hold duration as a hedge. U.S. Treasuries are currently reflecting expectations of solid growth. But if oil prices fall sharply and demand weakens, it could give the Federal Reserve room to ease policy. In that case, intermediate-duration bonds (“the belly” of the yield curve) would likely rally, providing a natural offset to risk assets.
Keep some cash on hand. Markets across equities, oil, and credit seem to be pricing in a smooth resolution to the conflict. If that assumption proves wrong—whether due to a breakdown in ceasefire or a supply glut hitting before restocking demand builds—liquidity becomes a strategic advantage. Having dry powder allows you to respond when dislocations create better entry points.
Overall, this is less about making aggressive bets and more about managing asymmetry: limited upside in crowded trades versus potentially sharper downside if the narrative shifts.
Bottom line: The market’s calm around the Strait of Hormuz is justified, and the focus on earnings is warranted. But the risk hasn’t disappeared—it has shifted. Instead of an oil price spike, the bigger threat may now be an oil downturn, and instead of geopolitics, attention turns to equity valuations. Both sides of that equation require active management, not complacency, even if markets appear steady.
With ceasefire talks postponed for the second time in a week, tensions between the U.S. and Iran over the Strait of Hormuz remain unresolved. Although equity markets have rebounded this month—shifting focus to a more optimistic macro backdrop—and crude futures have retreated from their March peaks, investors may be underestimating the tightening in physical oil supply.
At the start of 2026, an oversupply of crude was expected to weigh on prices. However, damage to energy infrastructure and production cuts in the Middle East have heightened concerns about a supply crunch triggered by disruptions in the Strait of Hormuz. Typically, about one-fifth of global oil supply flows through this passage, yet since March 1, only around 23,000 kilobarrels have exited—equivalent to less than a day and a half of normal volumes based on the previous year’s average. While earlier oversupply has cushioned the initial impact, a full market rebalancing could take several months.
Much of the attention has been on futures prices in the “paper” market, but a growing disconnect with the physical market has gone largely unnoticed since mid-March. Signs of tightening supply are evident as futures continue to trade below dated Brent—the benchmark for physical oil—even as prices recover after briefly surging past $140 per barrel ahead of the U.S.–Iran ceasefire.
As the last shipments that left the Strait of Hormuz before the conflict only reached their destinations in the week of April 13, securing physical crude supplies is quickly becoming a top priority. Japanese refiners have increased purchases of U.S. oil, Chinese buyers have pushed imports from Vancouver to record levels, and India has ramped up acquisitions of Venezuelan crude. In some cases, traders at Asian refineries have reportedly been willing to pay almost any price to secure cargoes.
While oil futures could decline once credible news emerges of a sustained reopening of the Strait, the shape of the futures curve indicates that a higher price floor may now be in place. Ongoing tightness in the physical market could drive a longer-term shift in the energy landscape—from a just-in-time supply model toward one that places greater emphasis on holding strategic inventories.
What’s Driving the Buzz Around the Petrodollar?
A major theme tied to the recent squeeze in physical oil markets is renewed speculation about the “death” of the petrodollar. Still, that narrative appears overstated. The petrodollar system—rooted in a 1970s agreement between the U.S. and Saudi Arabia to price oil in dollars and recycle those revenues into U.S. assets—remains structurally intact.
Concerns were stirred when Iran reportedly accepted transit payments in Chinese yuan, fueling talk of a potential shift toward a “petroyuan.” However, such a transition would be gradual at best, unfolding over years or even decades—not in a matter of weeks. That said, the offshore petrodollar system may be less influential in the current shock compared to past cycles.
Several factors explain this shift. Gulf nations have increasingly diversified away from traditional reserve assets like U.S. Treasuries, favoring sovereign wealth funds and equity investments instead. Saudi Arabia, for example, has begun issuing dollar-denominated bonds rather than simply reinvesting in them. Additionally, the temporary decline in Middle Eastern oil flows due to disruptions in the Strait of Hormuz has reduced the scale of dollar recycling tied to energy exports.
At the same time, the U.S.’s position as a net energy exporter helps sustain strong dollar liquidity within North American oil markets, reinforcing the broader role of the dollar in global energy trade.
What About Equities?
As global markets have shown since late February, rising oil prices don’t impact all regions equally. The U.S., now firmly a net exporter of petroleum products, enjoys a degree of insulation. This status helps shield domestic equities, which also tend to rely less on overseas revenue than many international peers—reducing vulnerability to global spillovers.
In contrast, developed markets outside the U.S. appear more exposed. Europe’s relative underperformance during the conflict highlights how higher energy and raw material costs can squeeze corporate margins and cap earnings growth. At the same time, rising oil prices often translate into “imported” inflation, pushing expectations higher for rate hikes from central banks like the European Central Bank and the Bank of England this summer. Even if markets treat the shock as temporary, tighter monetary policy could weigh on European equities in the near term.
Japan is particularly sensitive, with roughly 88% of its oil imports coming from the Middle East. Still, Japanese stocks have shown some resilience, supported by a rebound in technology shares. A similar pattern is visible across emerging Asia: markets with strong tech sectors, such as South Korea and Taiwan, have held up better, while countries like Thailand and Indonesia—less driven by tech—have been more negatively affected by rising oil prices and supply constraints.
Conclusion
This unprecedented shock to global energy supply is something investors should keep a close eye on. Current market signals point to oil prices staying elevated, while tightness in the physical market could persist as supply takes time to normalize—potentially marking a more structural shift in how energy markets operate.
That said, the situation does not appear catastrophic for either the U.S. dollar or global equities. The dollar index has actually strengthened since the conflict began, reinforcing its role as the world’s primary reserve currency. Similarly, concerns about the collapse of the petrodollar system seem exaggerated.
With both Washington and Tehran signaling a willingness to maintain the temporary ceasefire and continue negotiations over the Strait of Hormuz, equity markets are likely to shift their focus back to underlying fundamentals. The disruption from the effective closure of the waterway may remain a background factor rather than a dominant driver.
In the near term, U.S. equities are expected to outperform both developed and emerging markets, as strong earnings—particularly from the technology sector—should more than offset the relatively limited drag from higher oil prices.
Oil remains supported as disruptions in the Strait continue and diplomatic efforts show little progress.
Geopolitical tensions keep the risk premium elevated amid tanker incidents and stalled U.S.–Iran negotiations.
Brent’s outlook stays bullish, with prices potentially pushing toward $110 unless supply conditions improve.
Crude oil pulled back from earlier highs by mid-morning in the London session as markets opened the week with uncertainty over the timing and outcome of the US–Iran standoff.
Reports from Axios suggested that Iran has proposed a potential reopening of the Strait of Hormuz, offering a tentative sign of progress in what has been a slow and uneven path toward any agreement. However, this falls short of a true breakthrough. Following last week’s strong rally, the balance of risks for oil prices still leans to the upside.
What’s Driving the Oil Market?
Over the weekend, Donald Trump said he had canceled plans to send Special Envoy Steve Witkoff and Jared Kushner to Pakistan for talks with Iran. This came after Iran’s Foreign Minister Hossein Amir-Abdollahian left Islamabad without agreeing to meet US officials—hardly a sign of easing tensions.
Looking ahead, the outlook remains unclear. Tehran appears unwilling to engage while the naval blockade persists, while Washington is holding back its negotiators. This leaves markets in a holding pattern. While broader risk assets try to anticipate a resolution, oil traders are focused on the tangible factor: the actual flow—or lack thereof—through the Strait of Hormuz.
In this environment, oil prices are likely to continue edging higher unless disrupted by an unexpected shift. Recent tanker seizures and increased military activity in the Strait have reinforced the geopolitical risk premium embedded in prices.
If tensions escalate into open conflict, there is clear room for a sharper upside move. For now, as long as access through the Strait remains constrained, that premium is unlikely to fade. Rhetoric alone—no matter how constructive—has limited impact without real changes on the ground.
Ultimately, oil’s direction depends heavily on how the US–Iran situation evolves. Until there is meaningful progress, the path of least resistance remains upward, with Brent approaching a potential test of $110.
All About Oil Flows: Demand Destruction Highly Unlikely
While additional supply from producers like the United States and Russia may offer some relief, the global economy still relies heavily on energy shipments from the Gulf—underscoring the critical role of the Strait of Hormuz. The longer disruptions persist, the more pronounced the supply imbalance becomes. Demand may soften at the margins through rationing or reduced consumption, but it is unlikely to fully offset the shortfall.
In simple terms, a meaningful decline in oil prices would likely require a full reopening of the Strait and a normalization of shipping flows. Until that happens, the balance of risks remains tilted to the upside.
Technical Analysis and Levels to Watch on Brent
From a technical perspective, Brent continues to trend higher, with steady gains over recent sessions and only shallow pullbacks along the way. The move back above the $100 per barrel mark—broken earlier last week—has reinforced a bullish bias, with prices finding support on short-term dips.
Dip-buying is likely to remain a dominant theme unless conditions around the Strait of Hormuz worsen significantly. Key downside levels to watch include $103.50 and the psychological $100 mark.
In the near term, Friday’s high at $107.45 and Thursday’s high at $107.35 form an important zone. The $107.35–$107.45 range now acts as the first support area to monitor.
On the upside, resistance remains relatively thin until the $110 level, which could be tested soon barring any unexpected geopolitical breakthrough. Beyond that, the next potential resistance levels are $111, followed by $115 and $120 if bullish momentum persists.
Overall, unless a clear lower low and reversal pattern emerges, the path of least resistance for oil prices continues to point upward.
WTI advances as the Strait of Hormuz remains mostly closed, constraining Middle East supply. Oil’s upside could be limited as markets evaluate ceasefire chances and a possible reopening following Iran’s latest proposal to the US. Meanwhile, six Iranian tankers have been turned back under the US blockade, while an ADNOC LNG vessel has passed through Hormuz and is approaching India.
West Texas Intermediate (WTI) crude extends its advance for a second straight day, trading near $95.20 per barrel during Tuesday’s Asian session. Prices are being supported as the Strait of Hormuz remains largely closed, tightening energy supplies from the Middle East.
Still, further upside may be limited as investors assess the chances of a durable ceasefire and a possible reopening of the waterway following Iran’s latest proposal to the United States. Tehran has reportedly conveyed via Pakistan that it could de-escalate if Washington lifts its naval blockade, adjusts transit rules through Hormuz, and provides assurances against future military action.
A US official said Monday that President Donald Trump is not satisfied with the proposal, while Iranian sources indicated that Tehran is holding off on addressing its nuclear program until hostilities end and shipping disputes in the Gulf are resolved.
Now in its ninth week, the conflict has driven energy prices higher and disrupted key supply chains, with the International Energy Agency (IEA) warning of a potential supply shock alongside slowing demand risks.
The standoff remains unresolved, with Iran restricting flows through the Strait—responsible for roughly 20% of global oil and gas transit—while the US continues its blockade of Iranian ports.
Ship-tracking data cited by Reuters highlights the disruption, showing six Iranian tankers forced to turn back amid the blockade. However, an LNG vessel operated by ADNOC has managed to pass through the Strait of Hormuz and is reportedly approaching India.
The U.S. dollar rose on Thursday, supported by increased demand for safe-haven assets as tensions in the Middle East escalated.
Although the U.S. and Iran agreed to extend their ceasefire, continued attacks on vessels near the strategic Strait of Hormuz, along with strong rhetoric from both Washington and Tehran, dampened investor risk appetite.
By 15:56 ET (19:57 GMT), the U.S. Dollar Index, which measures the greenback against a basket of six major currencies, had gained 0.3% to 98.77.
Trump orders U.S. forces to destroy boats laying mines in the Strait of Hormuz.
Former U.S. President Donald Trump on Thursday said he had instructed the U.S. Navy to “shoot and kill” any vessels attempting to lay mines in the Strait of Hormuz. He added that American mine-clearing operations were already underway and would be intensified threefold. Meanwhile, Axios reported, citing a U.S. official, that Iran had deployed additional mines in the area.
Trump’s remarks followed escalating activity around the Strait of Hormuz, a crucial shipping route that carries about one-fifth of the world’s oil and gas. Its effective closure since the onset of the Middle East conflict has triggered what is being described as the largest oil supply disruption in history.
The U.S. military also announced it had seized an Iran-linked oil tanker, releasing footage that allegedly showed American forces boarding the vessel in the Indian Ocean. At the same time, Iran published a video appearing to show its troops taking control of a cargo ship near the strait.
Earlier, Tehran reportedly attacked three ships on Wednesday and seized two of them. Tensions have been fueled further by the ongoing U.S. naval blockade of Iranian ports and coastline, with U.S. Central Command stating that 33 vessels had been redirected since the blockade began.
Uncertainty over future negotiations between Washington and Tehran continues to weigh on markets. While both sides remain deadlocked over the strait and the blockade, the Wall Street Journal reported that mediators from Pakistan, Turkey, and Egypt are attempting to arrange talks that could take place as early as Friday. Meanwhile, Israel’s N12 News reported that Iran’s Ghalibaf had stepped down from the negotiating team following pressure from the Islamic Revolutionary Guard Corps.
Strong economic data and shifting Fed rate expectations support the dollar.
The U.S. dollar also gained support from stronger-than-expected preliminary PMI data. According to S&P Global, business activity in the U.S. picked up in April after slowing to near stagnation in March following the outbreak of conflict in the Middle East.
José Torres, senior economist at Interactive Brokers, noted that economic conditions improved slightly, with consumer demand, production, employment, and business sentiment remaining resilient despite supply chain disruptions and rising prices that continue to weigh on performance and outlook.
He added that the manufacturing sector stood out, driven by proactive inventory building in response to the Strait of Hormuz closure, as well as policy incentives introduced last year, which helped push S&P Global’s Flash PMI above expectations.
At the same time, expectations that the Federal Reserve may keep interest rates unchanged this year have strengthened. A rebound in oil prices above $100 per barrel has heightened concerns about inflation, raising the possibility that central banks could even consider rate hikes instead of cuts.
Kevin Warsh, nominated by Donald Trump to lead the Fed, told lawmakers on Tuesday that he had made no promises to lower borrowing costs and stressed the importance of the central bank’s independence, despite Trump’s repeated calls for aggressive rate cuts to support economic growth.
Meanwhile, a Reuters poll indicated that investors expect the Fed to hold off on any rate cuts for at least six months.
Eurozone output hits a 17-month low, while South Korea records robust GDP growth.
Eurozone business activity fell to a 17-month low, pushing the euro down 0.2% to $1.1687 after S&P Global data showed the private sector slipping back into contraction in April, ending 15 months of expansion. According to Chris Williamson, the region is facing mounting economic strain from the Middle East conflict, which is both dragging growth and fueling inflation, while supply shortages risk worsening the outlook further.
Meanwhile, the British pound dropped 0.3% to $1.3467, and the Japanese yen weakened with USD/JPY edging up to 159.68. The South Korean won also declined, with USD/KRW rising 0.4% to 1,483.48, despite strong data showing South Korea’s economy recorded its fastest growth in nearly six years in Q1 2026, driven largely by a surge in AI-related chip exports.
The conflict with Iran appears to be moving toward some kind of negotiated outcome, though the timing and specifics remain unclear. As the war drags on—and as the Iranian regime endures—the likelihood of a decisive US victory, understood as Tehran’s full capitulation, seems to diminish. This suggests a prolonged, uneven phase of de-escalation, with ongoing disruptions to the global economy likely in the meantime.
From this perspective, Iran is unlikely to win militarily. The US, on the other hand, has the capability to secure a decisive victory, but achieving unconditional surrender would almost certainly require a large-scale ground invasion—an option that appears improbable given the political costs, as seen in Afghanistan, Iraq, and Vietnam.
While the US can continue to intensify air and missile strikes, the impact of such tactics may be waning after weeks of sustained bombardment by US and Israeli forces. Expanding attacks on Iran’s infrastructure could inflict significant economic damage, but it remains uncertain whether this would compel the regime to fully concede, especially as it views the conflict as existential.
Given these dynamics, the most likely outcome is a gradual shift toward negotiations shaped by realities on the ground. The timing and structure of any agreement will depend on internal pressures—such as resource constraints and public sentiment—which create different breaking points for each side.
For the US, key concerns include maintaining its global credibility and influence in the Middle East, as well as managing economic repercussions. The closure of the Strait of Hormuz has already driven energy prices sharply higher, highlighting Iran’s ability to disrupt a critical global supply route and the limited options available to the US to fully counter such actions.
A critical vulnerability for Iran is the risk of economic exhaustion. While Tehran may be able to disrupt energy flows from the Gulf, the US has the capacity to tighten restrictions on Iran’s own oil exports—its primary source of income.
Ultimately, the situation may hinge on which side yields first.
China could emerge as a key, if understated, influence. As the largest buyer of Iranian oil—accounting for over 80% of its exports in 2025, and roughly 13–14% of China’s seaborne crude imports, according to Kpler—Beijing holds significant economic leverage. At the same time, China maintains extensive trade ties with the US, despite ongoing tariffs, giving it strong incentives to balance relations with both sides.
This dual positioning suggests China could quietly shape the path toward negotiations. One important dynamic to watch is whether Beijing uses its leverage to keep Iran engaged in talks, even as it continues to support Tehran’s capacity to withstand US pressure.
For the US, the key issue is when mounting political and economic pressures might convince President Trump that negotiation is the most viable option. Another open question is how far Washington is prepared to go in further weakening Iran’s economy. While escalation may be tempting, it comes with clear trade-offs. A renewed military push would likely keep energy exports constrained, sustaining higher inflation and dampening economic growth both domestically and globally.
In the end, neither side may achieve the outcome it seeks—only a compromise that both can ultimately accept.
Gold prices climbed during Asian trading on Wednesday, rebounding from a one-week low after the U.S. extended its ceasefire with Iran indefinitely, though uncertainty around future peace negotiations persisted.
The precious metal had come under pressure in the previous session after Federal Reserve Chair nominee Kevin Warsh indicated he had not assured President Donald Trump of any interest rate cuts if confirmed.
Spot gold gained 0.9% to $4,763.66 per ounce, while gold futures advanced 1.3% to $4,782.21/oz as of 02:45 ET (06:45 GMT). Prices continued to trade within the $4,700–$4,900 range observed over the past two weeks.
Other precious metals also posted gains, with spot silver rising 2.4% to $78.5335/oz and spot platinum increasing 2.3% to $2,087.15/oz.
On Tuesday, Donald Trump announced an indefinite extension of the ceasefire with Iran, opening the door for further negotiations between Washington and Tehran.
Despite the extension offering some near-term relief, the outlook for future peace talks remains unclear. Expected discussions between the U.S. and Iran, which were slated for Tuesday, collapsed at the last minute.
Trump also stated that a naval blockade against Iran would stay in place, prompting backlash from Iranian officials, who described the move as an “act of war.”
Gold has faced difficulties since the conflict began, as safe-haven demand has been outweighed by concerns over the war’s potential to drive inflation.
Since the outbreak of the conflict in late February, the metal has traded more like a risk-sensitive asset, often moving in line with equities as market sentiment shifts with developments in the situation.
Warsh signals no pledge on rate cuts, hints at major Fed policy changes
Precious metals came under pressure on Tuesday as the U.S. dollar strengthened, supported by market reaction to testimony from Kevin Warsh.
Warsh stressed the importance of the Federal Reserve’s independence from political influence, while also pointing to the possibility of a significant policy overhaul at the central bank if he is confirmed as chair.
A former Fed governor, Warsh is viewed as less dovish than markets had anticipated. His nomination in late January had already sparked sharp declines in gold and other precious metals.
Although his confirmation appears likely, the timeline remains uncertain. Several Republican leaders have opposed moving forward with Warsh’s appointment until the Trump administration ends its ongoing probe into current Fed Chair Jerome Powell.
As a result, Powell is expected to remain in his role beyond the scheduled end of his term on May 15, particularly if Congress delays Warsh’s confirmation.
Oil prices dropped by more than $1 on Tuesday, giving back the previous session’s gains, as expectations grew that U.S.–Iran peace talks this week could ease tensions and allow more crude supply from the Middle East.
Brent crude fell $1.04 (1.1%) to $94.44 per barrel by 0600 GMT. U.S. West Texas Intermediate (WTI) for May declined $1.66 (1.9%) to $87.95, with the contract expiring Tuesday, while the more active June contract slipped $1.24 (1.4%) to $86.18.
This pullback followed a sharp rally on Monday, when Brent jumped 5.6% and WTI surged 6.9% after Iran closed the Strait of Hormuz again and the U.S. seized an Iranian cargo vessel as part of its blockade.
Despite ongoing risks, market sentiment is being driven by optimism that negotiations could extend the current ceasefire or even produce a broader agreement, though disruptions to supply remain a concern.
ING analysts noted that while prices spiked after the Strait of Hormuz closure, trading patterns still reflect confidence in diplomatic progress, warning that markets may be underestimating the scale of supply disruptions.
Iran is considering joining peace talks in Pakistan, according to a senior official, as Islamabad works to mediate and end the U.S. blockade. However, the blockade continues to complicate Tehran’s participation, especially with the current two-week ceasefire nearing its expiry.
Citi analysts expect a memorandum of understanding or a ceasefire extension this week, potentially leading to a wider deal, but caution that prolonged disruptions remain possible if negotiations fail.
Uncertainty persists, as Iranian officials emphasized no final decision has been made. Foreign Minister Abbas Araqchi cited ongoing U.S. ceasefire violations as a barrier, while Parliament Speaker Mohammad Baqer Qalibaf reiterated that Iran will not negotiate under pressure.
Meanwhile, shipping through the Strait of Hormuz—responsible for roughly 20% of global oil flows—remained constrained. Citi estimates that if disruptions last another month, losses could reach 1.3 billion barrels, pushing prices toward $110 per barrel in Q2 2026.
Kuwait has declared force majeure on oil exports due to the blockade, while higher prices have already reduced global demand by about 3%, according to Societe Generale. The bank warned that risks skew toward greater losses the longer supply disruptions persist, with full normalization unlikely before late 2026.
Markets are increasingly betting that the conflict with Iran has come to an end. Yet even if that assumption holds, the economic repercussions are likely to persist for months—if not years.
While global attention tends to center on the immediate spectacle of war—airstrikes, blockades, and sanctions—the most disruptive consequences often emerge more slowly. In the Persian Gulf, the true impact is delayed, carried across the world through disrupted shipping routes and declining exports of oil, natural gas, and key agricultural inputs. Because of these lags, the global economy is only beginning to absorb the shock from reduced supply.
As Comfort Ero of the International Crisis Group observes, wars expose the fragile systems that quietly sustain everyday life. Strategic chokepoints like the Strait of Hormuz—normally overlooked—suddenly become critical when they falter.
Oil shipments from the Gulf typically take between 30 and 45 days to reach major markets. That delay means supply disruptions don’t show up immediately. Instead, countries draw down existing inventories while incoming supply gradually shrinks. By the time shortages become visible, the disruption has already been building for weeks.
Recent data underscores this dynamic. OPEC output plunged by 27% in March, signaling the first wave of global supply strain. Even under a sustained ceasefire, a rapid recovery appears unlikely. Industry leaders estimate it could take months for production in the region to return to normal levels.
At the same time, the easing of military tensions may create a false sense of stability. Beneath the surface, the economic damage continues to accumulate. Supply chain pressures are only now intensifying. Companies are beginning to feel the strain—illustrated by manufacturers halting orders due to shortages tied to disruptions in the energy supply chain.
The agricultural sector offers another clear example. With planting season nearing its end, rising fertilizer and fuel costs are forcing farmers to make difficult choices: cut back production or absorb significant financial losses. Many are already reporting deteriorating financial conditions.
Although limited shipping activity has resumed through the Strait of Hormuz, it remains uncertain how quickly normal export levels can be restored. Even if the passage reopens soon, the broader damage—to infrastructure, refining capacity, and logistics networks—will take far longer to repair, ensuring that the war’s economic aftershocks continue well into the future.
Oil isn’t the only export under threat. The Persian Gulf also supplies large volumes of natural gas liquids, ammonia, urea, and other petrochemical inputs that are vital to global fertilizer production. Prolonged disruptions to these flows could ripple through agricultural supply chains worldwide.
Even a short delay in shipments can trigger cascading effects—tightening fertilizer supplies, reducing crop yields, and driving up food prices months down the line.
In this sense, the war’s impact on oil and fertilizer inputs resembles a slow-building shockwave. For now, the global economy is cushioned by existing inventories and shipments made before the conflict. But as those buffers wear thin, declining exports from the Gulf are likely to place increasing strain on energy markets, food production, and overall economic stability.
The most significant consequences are not in the past—they are only starting to surface.
The U.S. dollar climbed to a one-week high against major currencies on Monday, as renewed tensions between the U.S. and Iran and fading hopes for a Middle East peace agreement pushed investors toward safe-haven assets.
Washington said it had seized an Iranian cargo vessel attempting to breach its blockade, while Tehran vowed retaliation, raising fears that hostilities could flare up again. Iran also announced it would not join a second round of talks the U.S. had aimed to begin before a two-week ceasefire expires on Tuesday.
According to Charu Chanana, chief investment strategist at Saxo, the weekend escalation has brought geopolitical risk back into focus just as markets had begun to price in a potential peace dividend. She added that rising oil prices are not only an energy concern but also have broader implications for economic growth and interest rates.
The euro slipped 0.14% to $1.1746, while the British pound dropped 0.29% to $1.3479. The Australian dollar, often seen as a risk-sensitive currency, declined 0.3% to $0.7145 in early trading.
The U.S. dollar index, which tracks the currency against six major peers, stood at 98.38, near a one-week high and recovering some recent losses. Despite this rebound, the index remains down 1.5% for April, as improving risk sentiment earlier in the month had weighed on the dollar. In contrast, it surged 2.3% in March amid strong safe-haven demand following the outbreak of war.
Barclays analysts noted that investor sentiment still favors the dollar, suggesting there may be room for further downside if Middle East tensions ease. They added that any short-term market volatility could present opportunities to rebuild short dollar positions, though uncertainty remains high.
Now in its eighth week, the conflict has triggered one of the most severe disruptions to global energy supply, driving oil prices sharply higher due to the effective closure of the Strait of Hormuz, a key route for roughly 20% of global oil shipments.
The U.S. has continued its blockade of Iranian ports, while Iran has alternated between lifting and reimposing restrictions on shipping through the strategic waterway. This uncertainty pushed oil prices higher on Monday, with Brent crude rising 7% to $96.8 per barrel and U.S. West Texas Intermediate gaining over 8% to $90.74.
Nick Twidale, chief market strategist at ATFX Global in Sydney, said the Strait of Hormuz remains the central concern, and hopes for renewed negotiations before the ceasefire ends now appear unlikely. He expects risk assets to face further downward pressure in the near term.
Elsewhere, the New Zealand dollar edged down slightly to $0.5876, while the Japanese yen weakened to 159.06 per dollar, approaching the key 160 level that could prompt intervention by authorities.
Attention is also turning to the Bank of Japan’s upcoming meeting later this month. Governor Kazuo Ueda has avoided firmly signaling an April rate hike due to uncertainty from the conflict but hinted at a more hawkish stance following last week’s IMF meetings, leaving open the possibility of policy tightening by June.
In cryptocurrency markets, bitcoin fell 0.56% to $74,229.65, while ether declined 0.2% to $2,276.04.
Easing tensions in the Middle East have weakened the dollar.
Meanwhile, the Bank of England is guiding rate expectations, keeping the prospect of two hikes intact.
Over the past two weeks, the US dollar has slid to its weakest level since early March, erasing nearly all the gains recorded at the onset of the Middle East conflict. With talks involving Iran expected to resume soon, and Donald Trump maintaining that the war will end shortly without the need for a ceasefire extension, geopolitical support for the greenback has faded. Alongside record highs in US equity indices, this shift has helped sustain the EUR/USD rally, as macroeconomic factors regain prominence.
At the same time, investor focus has turned toward corporate earnings and Congressional discussions over Kevin Warsh’s potential appointment as Fed Chair. Despite Trump’s assurances, a leadership change at the Fed could coincide with rising inflation driven by higher oil prices, potentially necessitating tighter monetary policy. The key question remains whether Warsh would align with the president’s stance or uphold the Fed’s independence.
Some investors are drawing comparisons to the 1970s, when an oil-driven inflation shock prompted a Fed Chair aligned with the White House to loosen policy. That decision fueled even higher inflation and entrenched expectations, leading to a sharp decline in the US dollar. Only after a change in leadership and aggressive rate hikes—despite a recession—did the dollar begin a sustained recovery from mid-1980 onward.
Potential currency interventions may also weigh on the dollar. Japan’s Finance Minister, Satsuko Katayama, has long advocated selling USD/JPY, and her rhetoric has intensified following talks with Scott Bessent. This hints that the US may be open to coordinated action in the FX market, reminiscent of the 1985 interventions that triggered a prolonged decline in the dollar.
Meanwhile, other European currencies are advancing alongside the euro. The British pound has climbed back to pre-war levels, supported in part by the Bank of England’s hawkish tone. Megan Green has backed market expectations of two rate hikes in 2026, while Andrew Bailey suggested earlier projections of four hikes were excessive.
The United States came close to becoming a net crude exporter last week for the first time since World War II, as exports surged to near-record levels to satisfy demand from Asia and Europe, where buyers were scrambling to replace Middle Eastern supplies disrupted by the Iran conflict. The war involving the U.S., Israel, and Iran caused an unprecedented shock to global energy markets, with threats to shipping through the Strait of Hormuz halting roughly 20% of global oil and gas flows. As a result, refiners in affected regions turned to alternative sources, significantly increasing demand for U.S. crude, though analysts note exports are nearing capacity limits.
Net U.S. crude imports dropped to just 66,000 barrels per day last week—the lowest level since records began in 2001—while exports rose to 5.2 million bpd, a seven-month high. Historically, the U.S. was last a net crude exporter in 1943. Strong export growth reflects how buyers in Europe and Asia are reaching further afield for supply, with price differences offsetting shipping costs. Countries like Greece have recently begun importing U.S. crude for the first time, and major buyers include the Netherlands, Japan, France, Germany, and South Korea. Nearly half of U.S. exports went to Europe, while Asia’s share has grown significantly.
Meanwhile, U.S. imports fell sharply, partly because domestic refineries rely on heavier crude than what the U.S. typically produces. A widening price gap—driven by a surge in Brent crude relative to West Texas Intermediate—has made U.S. oil more attractive overseas while reducing domestic demand for imports. Spot prices for crude deliveries to Europe and Africa have also hit record highs.
Despite strong demand, U.S. export growth is approaching logistical limits. Exports may average around 5.2 million bpd in April, close to the estimated maximum capacity of about 6 million bpd, constrained by pipeline infrastructure and tanker availability. Although releasing medium sour crude from strategic reserves could free up more light crude for export, higher shipping costs and limited tanker supply could dampen further growth. About 80 empty supertankers were reportedly heading to the Gulf of Mexico, likely to load crude in the coming weeks.
The U.S. dollar remained near a six-week low on Wednesday as growing optimism about a sustained ceasefire in the Iran conflict boosted investors’ appetite for risk.
In recent weeks, investors have increasingly shifted toward riskier assets like equities, putting pressure on the dollar, which had served as a preferred safe-haven during tensions in the Middle East.
As of 16:57 ET (20:57 GMT), the U.S. Dollar Index—measuring the greenback against a basket of six major currencies—edged down 0.1% to 98.06.
Trump signals possible end to war despite ongoing U.S. blockade
The U.S. dollar surged in March as investors sought safety during the Middle East crisis, supported by the view that the U.S.—as a net energy exporter—would be less affected by disruptions such as the closure of the Strait of Hormuz.
However, the currency has since slipped back toward pre-war levels, as expectations of a lasting ceasefire reduce its safe-haven appeal. Analysts at ING noted that markets are increasingly pricing in a positive outcome from upcoming U.S.-Iran talks, though they caution that risks for the dollar may still tilt upward.
President Donald Trump indicated the conflict with Iran could soon end, even as U.S. forces maintain a fully enforced naval blockade restricting Iranian shipping. He suggested a permanent ceasefire might be reached before King Charles’ upcoming visit and described the conflict as nearing its conclusion.
Reports also indicate that ceasefire negotiations may resume shortly after earlier talks failed to yield results. The White House said discussions remain active and constructive, expressing optimism about a potential agreement while denying any request to extend the current truce.
The U.S. and Iran are observing a fragile two-week ceasefire through April 21. Meanwhile, broader regional tensions persist, with Israel continuing strikes in Lebanon despite rare direct talks with Lebanese officials—raising concerns that the fragile de-escalation could unravel.
Inflation and central banks in a potential “peace trade”
Oil prices have been volatile but stayed below $100 per barrel, as traders closely monitor supply through the Strait of Hormuz—a key route for roughly a fifth of global oil shipments. Despite fluctuations, crude remains higher than pre-conflict levels, sustaining concerns about rising global inflation.
Recent U.S. data for March showed that higher oil prices significantly lifted headline inflation, while core inflation was less affected.
According to Thierry Wizman of Macquarie, a peace scenario would likely push oil and gas prices lower. This would trigger a “peace trade,” particularly impacting inflation expectations and central bank policy. Central banks that turned more hawkish due to rising energy costs could shift back to their pre-war outlooks if prices ease.
Wizman noted that the Bank of England—and possibly the European Central Bank—have the most room to soften their stance, as they had become notably more aggressive on rate hikes after the conflict began. A drop in energy prices could therefore lead to a less hawkish policy outlook.
He added that one of the most attractive trades in such a scenario would be positioning for lower interest rates over the next 9 to 12 months, particularly in instruments like GBP OIS or Libor, even as markets have yet to fully price out the possibility of rate hikes this year.
Euro and pound steady; yen weakens despite Katayama’s remarks.
The euro remained largely flat at $1.1799, while the British pound slipped 0.1% to $1.3560.
The Japanese yen also weakened slightly, with USD/JPY rising 0.1% to 158.96, despite comments from Finance Minister Satsuki Katayama indicating that authorities stand ready to take “bold” measures if necessary.
After bilateral talks at the U.S. Treasury in Washington, Katayama noted that both sides had extensive discussions on currency matters and agreed to strengthen coordination going forward.
THE ETERNAL SOVEREIGN 