When the fuse is lit, only the fuse knows the burn rate

The marquee narrative today is once again dripping with geopolitics, as the Israel-Iran fuse continues to burn with just enough ambiguity to keep traders twitchy but not panicked. The oil market, ever the barometer of geopolitical angst, isn’t buying into the full Armageddon scenario just yet. Instead, it's pricing in a $10 per barrel geopolitical premium—pure risk fluff, not the real supply squeeze. Brent holding below $75 tells you everything: this is about hedgers’ insurance.

Still, here’s the kicker—wars don’t follow spreadsheets. The longer this skirmish drags, the greater the chance someone lights the barrel: be it Iran’s domestic production taking a hit, the Strait of Hormuz clogging up, or Uncle Sam sending boots to sand. That would torch the current base case and send Brent past $80 in a blink, with $120+ back on the radar if tankers stop floating freely.

For now, though, oil is trading like it’s confined to a geopolitically smeared range—call it Brent $73–79 near-term, stretching to $70–80 topside. But even this modest bump is throwing a wrench into the rate-cut lovefest. Inflation, driven by tariffs, was already pressuring the Fed, and now energy has added a volatile layer of ambiguity. This isn’t your garden-variety guidance—it's a Fed walking a tightrope while being heckled by Trump’s Twitter ghost.

Which brings us to the dollar. Typically, higher oil ( and higher rates) would be a tailwind for the buck—but not in this twilight zone. The USD bounce after the initial airstrikes was half-hearted and faded fast. That’s telling. Traders aren’t buying the “safe-haven” narrative because this oil pop smells more like optionality than obligation. No supply shock, no sustained USD bid. Methodical USD shorts rebuild the fortress every time the greenback dares to lift its head these days.

There’s a more profound malaise eating away at the buck: FX markets no longer see US rate cuts as a reward for disinflation, but as a rescue job for a buckling economy. That’s the “bad” kind of pivot—the behind-the-curve, dragged-kicking-and-screaming variety that leaves dollar bulls bleeding. And with oil refusing to roll over and tariffs clogging the supply-side plumbing, the waters get murkier. Even if the Fed shows up this week with a hawkish pause and tweaks the dot plot, don’t expect the market to hand the dollar a hall pass. Structural distrust is the name of the game—every bounce is suspect, every bid is rented, not owned.

In short, the FX market is squinting through a kaleidoscope of geopolitics, sticky inflation, and tariff-fueled supply chain déjà vu—trying to price clarity in a hall of mirrors. The noise is deafening, but the underlying rhythm hasn’t changed: fade the dollar on strength, because conviction is still in short supply.