US Dollar: Market weighs escalation risks and Fed path – Commerzbank

Commerzbank’s Antje Praefcke notes that rising Oil prices linked to renewed Middle East tensions are lifting US inflation and pushing back expectations for Fed rate cuts, with markets even contemplating a hike by mid‑2027. She argues that higher US yields are tightening financing conditions and that uncertainty over President Trump’s Iran strategy is keeping the Dollar and Oil volatile.

Middle East risks, Oil and Fed repricing

"We may have to get used to the idea that, despite all efforts, a renewed escalation in the Middle East conflict could be more likely than the long-awaited de-escalation."

"The market seems to see it similarly, because as my colleague Michael wrote yesterday, expectations of Fed rate cuts for the current year have now been priced out; the market now even sees a chance that at least one rate hike could come by the middle of next year."

"No wonder, after all: as oil prices rise on the global market, so does the inflation rate in the US thanks to higher prices at the gas pump."

"So whether we really have to get used to the idea of a renewed escalation is something only the US President knows for sure."

"So the market is once again gaining hope for a de-escalation today, with oil prices and the dollar falling slightly."

"As is so often the case, I can only advise keeping an eye on the news flow."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)