Geopolitical Risks Coupled with Delayed Rate Cut Expectations, the US Dollar May Emerge as the Ultimate Winner

According to analysis by Capital Economics economists, as the Iran conflict fluctuates and evolves, global financial markets are likely to be impacted by swings in investor risk appetite. They warn that if the conflict escalates, government bonds may not provide reliable safe-haven functions, as expectations for monetary easing could be delayed. This situation is particularly evident in economies like the United States, where markets had previously priced in multiple rate cuts. If sentiment continues to deteriorate, the US dollar may continue to strengthen, primarily benefiting from the cessation of rate cuts making relative yields favorable for the dollar, as well as the US's status as a net energy exporter. (Jin10)