Playing with Fire

July 13, 2026
  • Fighting escalates in the Middle East. Crude oil prices edge a bit higher. Dollar early gains quickly fade.
    • Economic calendar is quiet today.

       

      Crude oil prices bounced briefly, worsening the inflation outlook and driving up bonds yields across the curve. Renewed US-Iran military strikes risk further delaying a full reopening of the Strait of Hormuz. Iran said on Sunday the strait would be closed “until further notice” while the US military insisted the strait was “open to all vessels seeking to lawfully transit”.

      USD initially firmed against all major currencies before drifting back lower. Currency markets continue to treat the fresh fighting in the Middle east as another episode of managed escalation, as technical talks between the two sides are still ongoing.

      NZD and KRW are outperforming most major currencies. NZD remains underpinned by last week’s hawkish RBNZ hike, while KRW rally mirrors the plunge in the KOSPI stock index.

      Looking ahead we continue to see scope for further USD gains. Sticky US inflation and a resilient labor market will keep Fed pricing hawkish, while US economic outperformance is poised to keep rate differentials supportive of USD.

      There are no policy-relevant economic data due today. Instead, markets will look to remarks from Fed governors Michelle Bowman and Christopher Waller for any insights into the Fed’s reaction function
       

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