Forex News

MUFG’s Lee Hardman highlights that Brent briefly spiked above USD 82 before slipping back under USD 80 as traders assess Middle East supply risks. He notes tanker traffic through the Strait of Hormuz has largely halted and expects a geopolitical risk premium in Oil prices to persist, with potential macro consequences skewed against Asia and Europe.

Strait of Hormuz disruption drives risk premium

"The price of Brent initially jumped to a high of USD82.37 overnight but has since dropped back below USD80/barrel in response to heightened fears over the potential disruption to global oil supply."

"According to Bloomberg, tanker traffic though the Strait of Hormuz has largely halted, with a self-imposed pause in place by shipowners and traders as the conflict spreads within the Middle East."

"The Strait of Hormuz is an important choke point for the global economy given that about a fifth of the world’s oil and liquefied natural gas typically flows through every day."

"For now takers are continuing to pile up outside the waterway as companies wait for clarity on the security situation."

"Market participants are likely to continue to price in a geopolitical risk premium into the price of oil for the foreseeable future."

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

Nomura’s Senior European Economist Andrzej Szczepaniak assesses how recent moves in crude Oil, Natural Gas and EUR/USD following the US/Israel conflict with Iran could affect euro area HICP and ECB expectations. He notes that current Oil and Gas price gains versus the ECB’s December 2025 assumptions may only marginally lift rate hike pricing into 2026–2027, leaving policy reaction limited for now.

Inflation impact and rate expectations

"For the ECB, the focus will be on how pronounced and persistent recent crude oil and natural gas price moves are, as well as how they will affect euro area HICP inflation."

"However, it’s important to take this in the context of where the ECB had assumed crude oil and natural gas prices in their December 2025 forecasts, and also the extent to which the fall in EUR/USD, albeit marginal, will amplify these inflationary pressures. "

"Markets are likely to marginally raise expectations for rate hikes by December 2026 and December 2027, without necessarily fully pricing any additional hikes (i.e., the cumulative change in pricing by Dec 2027 will be meaningfully less than 25bp)."

"The rise in 1y HICPxt inflation pricing, rising to 1.97% from 1.80%, and 2y HICPxt inflation pricing, rising to 1.91% from 1.77%, suggests markets believe the rise in oil prices will be contained and also maybe that the conflict will to some extent be short-lived."

"Ultimately, we believe recent moves are contained enough so far to ensure the ECB does not do anything reactionarry in the near-term – recall, the ECB had forecast HICP inflation would undershoot its target from Q3 2026 to Q4 2027."

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

HSBC Asset Management notes a spike in the policy uncertainty index on recent US trade and Federal Reserve headlines, even as US stocks range-trade and volatility stays contained. The team sees US growth near trend, with sticky but gradually moderating inflation through 2026. They argue rising policy uncertainty supports expectations that the Fed will stay on hold in coming months.

The only certainty is uncertainty!

"The policy uncertainty index spiked last week on the recent trade and Fed headlines. But financial markets appear unconcerned – US stocks are range-trading, the VIX volatility index is relatively low at 20, and credit spreads are at multi-decade tights. What’s going on?"

"#1. First, it is very likely that textual data overstates uncertainty. Even the academics who built the policy uncertainty metric now accept that."

"#2. A lower effective tariff rate is good news for GDP growth and inflation. US growth is running around its trend pace, thanks to robust profits and the AI capex boom."

"And, while US inflation is likely to remain a bit sticky through 2026, recent data shows a gradual, bumpy journey back to the inflation target."

"#3. Rising policy uncertainty reinforces the idea that the Fed stays on hold over the next few months."

"Meanwhile, the action in markets continues under the surface. There is a “great rotation” underway, from growth and momentum, into value and emerging markets. That process has much further to run."

"The real test for investment markets in 2026 will come if inflation remains high, which would constrain the Fed. Or if profits start to wobble."

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