Geopolitical Premium Evaporates, Oil and Dollar Plunge

Hormuz Reopening Sends Oil and Dollar Tumbling 

The US dollar followed suit. The Dollar Index (DXY) slipped below the 99 level as lower oil prices eased inflation concerns and reduced the likelihood of a hawkish shift from the Federal Reserve. Higher energy costs had been the single biggest driver of the greenback’s strength since the conflict began; with that pressure now easing, the USD’s appeal as an inflation hedge faded. The DXY was last seen trading around 98.90, having peaked around 100.50 in late March. 

Gold reclaimed its mojo after weeks of uncharacteristic weakness, having been weighed down by a stronger dollar and rising yields. The precious metal surged back towards $4800 today in response to the oil price retreating and the dollar softening. Next resistance levels to watch on the topside include $4850 and $4935, with support at $4635. If oil prices and the Dollar remain on the backfoot during this two-week ceasefire, gold stands a good chance of getting back to the $5k level in the near-term. But any signs that ceasefire is not holding could reignite oil and undo gold’s ambitions to move higher. 

Risk assets broadly joined the party on the ceasefire news. Asian equity indices posted solid gains across the board, while US stock futures climbed in overnight trading, signalling that the relief rally is likely to extend into the New York session. Yet the mood remains one of cautious optimism rather than outright celebration. The ceasefire is only two weeks long, and markets will be watching closely to see whether shipping through the Strait of Hormuz normalises as promised and whether the fragile truce can pave the way for a more durable peace agreement.