The Federal Open Market Committee (FOMC) and Treasury International Capital (TIC) data didn’t significantly affect the markets due to ongoing uncertainties about tariffs and oil price fluctuations. The Federal Reserve’s plan for two rate cuts in 2025 seems slightly relaxed, but they showed little concern regarding growth and unemployment. TIC data indicated a $36 billion drop in foreign US Treasury holdings out of $9 trillion in April. This suggests that domestic investors were more involved in the recent Treasury sell-off than expected. There are still signs of de-dollarisation, but more TIC data is needed for confirmation.

Geopolitical Tensions and Market Sentiment

Geopolitical tensions, especially concerning potential US actions against Iran, are shaping market sentiment. Media reports hint at possible US military involvement, which could affect the USD risk premium. The dollar remains relatively strong, particularly compared to energy-dependent currencies like the euro. High oil prices further enhance the dollar’s stability. Uncertainties around the Bank of England’s decisions—holding the bank rate at 4.25% while some policymakers lean toward cuts—are also influencing trade. The resilience of the US dollar has slightly weakened the euro, while geopolitical tensions have driven up gold prices. Bitcoin is around $103,100, with concerns over Iran playing a role in market views. The Fed’s recent projections indicate a slightly accommodating approach for 2025, with two rate cuts outlined. Markets are starting to consider this change. However, Powell and his team do not seem worried about labor markets or the economy, suggesting they see enough strength to hold off on major easing for now. It’s not a pivot; traders should view it as a caution signal rather than a clear direction. Looking at TIC flows, there was a notable decline as foreign holders reduced their investments by $36 billion in April. While this is small compared to the total of $9 trillion, it highlights the greater role of domestic investors in recent sell-offs. This suggests that recent changes have been driven more by local than global forces. However, confirming a trend of de-dollarisation requires more data. Current evidence is fragmented and doesn’t clearly indicate a specific direction, but the change is noticeable. Geopolitical issues also bring uncertainty. Expectations of a more aggressive US stance on Iran are mounting, with significant media coverage suggesting imminent military action. These concerns may be increasing the dollar’s risk premium. Currently, investors prefer to hold US dollars during uncertain times, especially as oil prices fluctuate. This contrasts with the eurozone, where reliance on external energy sources weakens the euro when oil prices rise. This situation remains unchanged. A quick spike in oil prices should prompt a reassessment of European investments relative to the dollar’s ability to withstand shocks.

Impact on Metals and Cryptocurrencies

Back home, uncertainty from the Bank of England is affecting intraday trading. The 4.25% bank rate faces pushback from some policymakers leaning towards a more dovish approach, though no official changes have occurred yet. The lack of agreement—not just in media discussions but also in formal votes—impacts short-term sterling strategies. This leads to brief but frequent market shifts that can be observed in yield curve movements. In the metals market, gold benefits from safe-haven buying, acting like a pressure release valve. In cryptocurrencies, Bitcoin’s trading around $103,100 suggests a wait-and-see attitude, likely due to uncertainty over potential global conflicts. Investors are cautious but not indifferent, and derivative pricing across the board should reflect this defensive strategy. It’s important to stay vigilant for market changes driven by geopolitical events rather than just economic data. The focus should be on where risk might emerge rather than overall economic growth, as volatility is likely to cluster around critical geopolitical issues. Shifting focus toward assets tied to geopolitical dynamics—like commodity-linked currencies, energy hedges, and safe-haven assets—could provide short-term opportunities if managed carefully. Create your live VT Markets account and start trading now.

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