Markets are quieting down as the conflict between Iran and Israel becomes less significant. At the start of the week, there was a lot of activity, but now things have settled. Major currencies are mostly stable, with the dollar slipping. As tensions ease, riskier investments are gaining traction, pushing the S&P 500 closer to a new record, while US futures remain steady. Focus is shifting back to economic factors like Trump’s tariffs, trade issues, and actions by central banks. Fed Chair Powell recently mentioned possible rate cuts while pointing out various economic risks. He also noted that price increases are expected in the third quarter, which makes a rate cut in July less likely.

Anticipated Rate Cuts

Traders are predicting a 25 basis point rate cut by the end of Q3, though it’s unclear if more cuts will occur in September. Currently, there is an expectation of about 60 basis points in cuts by year’s end. European trading today is expected to be calm, with market movements affecting overall sentiments. The economic calendar shows only Spain’s final Q1 GDP and Switzerland’s UBS sentiment data, which suggest that markets are still adjusting after the recent conflict. This article highlights a clear change in focus now that urgent geopolitical risks are fading. The tensions between Iran and Israel, which had previously created volatility, are now being set aside, allowing financial markets to stabilize. As the week goes on, market activity slows and investors seem more willing to take risks. The dollar has weakened, and equity markets, particularly in the US, are nearing new highs. Powell’s comments have added complexity to the policy outlook. He suggested that while rate cuts are possible, his observation of increasing inflation in the third quarter puts that timeline in question. This shows a cautious approach — he’s keeping options open without rushing into decisions. Traders had anticipated a 25 basis point cut, possibly in July, but growing concerns about ongoing price pressures cast doubt on that scenario. Currently, expectations indicate about 60 basis points in cuts by year-end, suggesting two small reductions or reluctance to proceed further.

Inflation And Market Adjustments

Market participants aren’t completely dismissing the idea of rate relief, but they are reconsidering how soon it might happen. Investor confidence seems to depend on upcoming inflation data over the next few months. This data will be crucial in determining if more easing can be justified. Short-term interest rate products are experiencing minimal adjustments today, reflecting a cautious stance. As trading begins in Europe, activity remains low. Without new data from the eurozone’s main economies, any movement will likely come from technical factors or developments elsewhere. Spain’s final GDP and UBS’s sentiment index from Switzerland don’t provide much new insight. Therefore, today’s volatility is not driven by significant macro news. This environment calls for a shift to slower, data-driven movements. With fewer headlines impacting performance, chart analysis becomes more important, and short-term trends gain significance. As implied volatility decreases, opportunities evolve. We should focus on term structures for options and implied move pricing for the July and September contracts. Earlier expectations for sharp market moves may have been overly optimistic — risk appears mispriced on both ends. Now, as markets shift from geopolitical concerns to monetary speculation, the softening of dollar pairs and narrowing yield curves should not be seen as indecision. Instead, they suggest cautious optimism or careful positioning ahead of upcoming economic signals. What’s important now is the rate and nature of inflation, as that will impact spreads more than any current headlines. Create your live VT Markets account and start trading now.

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