Forex News

Rabobank Senior Macro Strategist Bas van Geffen says the US-Iran stalemate and disruption in the Strait of Hormuz are keeping oil-driven inflation risks elevated. Inventories have cushioned reduced flows so far, but prolonged tensions could erode that buffer, while Venezuelan oil may eventually provide an alternative supply source.

Iran, Hormuz and Venezuela reshape oil flows

"It's increasingly difficult to see a way out of the US-Iran stalemate. Yesterday, the Qatari prime minister travelled to Tehran to try to revive the dialogue between Washington and Tehran, but President Trump thwarted hopes of diplomacy. The US president reportedly has no interest in reviving the memorandum of understanding, blocking mediators’ options to restart negotiations."

"Inventories have cushioned the impact of reduced oil flows for now, but as the stalemate continues and inventories deplete, the efficacy of the Hormuz closure increases."

"Closing the Strait of Hormuz is forcing exporting neighbours and importing countries around the globe to rethink their supply lines. As alternatives are developed, Iran’s ability to take the global economy hostage will wane."

"As a case in point, the US is negotiating a stake in Venezuela’s oil fields, and Venezuela is reportedly considering quitting OPEC."

"Still, it will take time for this alternative supply to come online. And that may require massive upfront investments, hence funding, at a time when there is already so much strain on budgets and competition for funding."

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

• USD/CHF stalls below 0.8750, on track for a 0.45% weekly appreciation.
• US Dollar firms up as Fed officials push for higher interest rates ahead of Warsh's speech at Jackson Hole.
• On Thursday, Swiss data revealed that the labour market remains resilient despite Middle East uncertainty.

The Swiss Franc (CHF) trades marginally lower against a somewhat firmer US Dollar (USD) on Friday, with market volatility subdued as investors await the speech of the Federal Reserve (Fed) Chairman, Kevin Warsh, at the Jackson Hole Symposium, due later on the day. The USD/CHF pair trades practically flat just below 0.8750, on track for a 0.45% appreciation this week.

Markets are eager for further insight into the Fed’s plans to tame hot inflationary pressures, after the disappointment of the last monetary policy meeting, which left investors pondering whether the hawkish comments of Warsh’s inaugural speeches will be supported with facts.

Fed officials call for higher interest rates

Recent US inflationary data added pressure to hike interest rates, and some Federal Reserve officials supported that view on Thursday, putting some pressure on Warsh. Kansas Fed President Jeffrey Schmidt said on CNBC that inflation is “still sticky and we've got to continue to find ways to break through" while the Cleveland Fed President Beth Hammack reiterated that it is “time to act,” referring to interest rate hikes, which provided a moderate boost to the USD.

Rabobank’s Bas van Geffen remains sceptical over how much guidance FOMC Chair Warsh will offer at Jackson Hole. Van Geffen wonders whether he will stick to his script or instead “feel compelled to be a bit more outspoken, after Treasury Secretary Bessent’s interventions in the rates market pushing back against the long end of the Treasury curve.” For Rabobank, “the lack of a monetary policy panel in this year’s schedule suggests that Warsh will stick with the first option,” reinforcing expectations that clear policy signals may remain in short supply.

The Swiss Franc, on the other hand, failed to draw support from the upbeat Swiss employment figures released on Thursday, which suggest that the Swiss labour market is withstanding the energy shock and the uncertainty from the Middle East conflict quite well.