The U.S. dollar remained firm as uncertainty around the Middle East continued to support demand for safety, while elevated Treasury yields added a second layer of support.
While President Donald Trump’s announcement of a pause in a planned military strike against Iran to allow negotiations to proceed could offer some relief at the margin, the lack of clarity around diplomatic progress and the risk of renewed escalation are still keeping markets cautious.
At the same time, persistent disruption in the Strait of Hormuz could keep oil prices elevated, reinforcing inflation concerns and sustaining upward pressure on Treasury yields.
The 10-year Treasury yield stayed close to a yearly high as investor positioning remained cautious, given the risk of unpredictable geopolitical developments and shifting monetary policy expectations. That backdrop continues to offer underlying support to the dollar.
The broader monetary policy backdrop also remains supportive for the dollar. Persistent inflation pressures are pushing markets towards a higher-for-longer view on rates, while attention is now turning to Kevin Warsh’s arrival at the Federal Reserve and what that may mean for the policy path from here. Investors are likely to watch closely for any shift in tone as the leadership transition begins.
Attention now turns to ADP employment data, speeches from Federal Reserve officials, and tomorrow’s FOMC minutes. With the last meeting already drawing scrutiny because of dissent, markets will be looking closely for any sign of how united policymakers really are on inflation, rates, and the path ahead.
From a technical perspective, both the dollar index and oil continue to trade within ranges, reflecting the broader uncertainty in global markets. From a portfolio standpoint, we remain flat on both, with our focus firmly on a rising stock market, suggesting that much of the geopolitical risk is already being absorbed. The S&P 500 and Nasdaq 100 have led the move, both setting record highs since April. The Dow 30 has also been trending higher, although it has yet to break out to fresh record highs. In time, we expect it to follow. Our portfolio remains focused on compounding the strongest stocks in the most robust sectors. We will add dollar pairs and oil if and when a clear trend is confirmed.
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