USD: Temporary relief in markets and potential threats to the Dollar – Rabobank

Temporary Ceasefire Lowers Market Volatility

Rabobank analysts Michael Every and Bas van Geffen observe that a brief halt in hostilities between the US and Iran has eased immediate market anxieties. As a result, Brent crude prices have fallen and stock markets have climbed. Despite this, they caution that the ceasefire is only a short-lived pause, leaving at least two weeks of lingering uncertainty. The experts outline a range of possible outcomes, from a decisive US victory to scenarios that could negatively impact the Dollar and Gulf Cooperation Council (GCC) assets.

Risks Remain Despite Market Calm

“Investors are treating this as a ‘TACO [Trump Always Chickens Out] Tuesday.’ Brent futures have dropped by 14% at the time of writing, Asian equities have surged, and futures indicate similar gains are likely in European and US markets. Expectations for imminent rate hikes have faded, as the ceasefire comes just before major central banks are set to review their policies.”

“However, this brief pause does not equate to lasting peace. Uncertainty persists, especially regarding safe passage through the Strait, as the conflict remains unresolved. The current relief is expected to be followed by at least two more weeks of unpredictability, which could extend further if negotiations continue.”

“The situation remains unclear, even though fighting has temporarily ceased. The range of possible developments includes:

• Best scenario: The conflict ends, although the Israel-Hezbollah tensions in Lebanon are not part of this resolution, according to Prime Minister Netanyahu. Other global disputes could also ease if the US prevails and Iran backs down.
• Positive scenario: Hostilities conclude because Iran retreats.
• ‘Good’ scenario: The war ends because Trump withdraws, which could have negative consequences for the Dollar, GCC, and Western assets that markets are not currently factoring in.
• Moderate scenario: The conflict is temporarily halted and the Hormuz Strait briefly reopens, offering some relief to the global economy as both sides step back.
• Worst scenario: The ceasefire fails, leading to renewed and intensified fighting as each side seeks to force the other to concede. Close attention should be paid to US military movements.

“From a macroeconomic and market perspective, the latest developments support our expectation that fighting will end by mid-April, with the Hormuz Strait reopening gradually under US terms. If the ceasefire instead results in renewed conflict, we would shift toward more adverse scenarios.”

(This article was generated with AI assistance and reviewed by an editor.)