Markets have decisively flipped the switch. What began last week as a geopolitical unwind has now morphed into a full-blown risk-on rally, with capital rotating aggressively back into equities, crypto etc. The ceasefire between Israel and Iran has defused what had been a volatility engine in recent weeks, and markets are quickly repricing a world in which macro fragility is being drowned out by liquidity. There is a growing sense that risk remains under owned, and that every dip is getting bought with greater confidence. Let us unpack what has changed and why the bears are getting steamrolled.
Macro: Ceasefire Relief, Soft Data, and a Softening Dollar
U.S. equities pushed to fresh record highs this week, led by the Nasdaq and S&P 500, as investors reallocated back into risk amid calming geopolitical rhetoric and a weaker economic print.
On the data front, US Q1 GDP was revised lower again to -0.5%, confirming the first quarterly contraction since 2022. This was accompanied by slightly lower jobless claims (236,000 vs exp of 245,000), though these data prints alongside recent softening in US CPI are still not enough to warrant a Fed pivot it seems.
Fed Chair Powell held the line during his congressional testimony, reiterating caution on rate cuts while acknowledging tariffs could keep inflation elevated longer than expected. Trump, meanwhile, took another swipe at Powell, with reports suggesting he may name his successor before Powell’s current term ends in 2026.
All of this unfolded as the U.S. dollar broke to a three-year low, and USD/CHF slipped below 0.80, levels not seen since 2011. While CHF strength has likely overshot in the short term, the broader takeaway is this: the USD is losing its appeal, but this should overall bode well and be supportive of risk assets.
Crypto: Flows Build, Structures Hold, and Bitcoin Leads
Crypto joined the broader risk rally this week, with BTC reclaiming USD 108,000 a ~10% gain off last Sunday’s lows, before easing modestly.
ETH followed suit, pushing above USD 2,500 before stalling, and now trades just below this level and in a tight range. While ETH continues to lag BTC in both momentum and flow, it remains directionally aligned.
What stands out is the strength and composition of flows. BTC ETFs saw over USD 1.5 billion in inflows this week alone, marking one of the strongest weekly prints recently. This influx of capital has helped reinforce BTC’s role as the institutional benchmark for digital assets. By contrast, ETH ETF flows have remained modest, approximately USD 200m of inflows this week.
The rally has also been reinforced by a broader evolution in how crypto is being utilized. For example, in a notable policy development this week, Fannie Mae and Freddie Mac are said to prepare for crypto-backed mortgages. Together, these developments point to crypto’s expanding role; functional, integrated asset within balance sheet, policy, and treasury contexts.
Looking Ahead: Positioning Shifts, Dollar Pressure, and a Market on the Move
The market backdrop has shifted materially in recent weeks – from defensive to opportunistic. With geopolitical risk cooling and the USD under sustained pressure, the environment for risk assets looks notably different from just two weeks ago.
The move has been fueled less by new narratives and more by the absence of fear – a theme reflected in compressed volatility, softening dollar, and strong inflows.
The tariff calendar remains a live risk, with July 9th fast approaching, and Friday’s PCE data is likely to be a focal point for macro repricing. But recent price action suggests that markets are becoming increasingly resilient to headlines, especially those tied to geopolitical or trade tension.
Meanwhile, the USD continues to weaken with the selloff contributing to loosening in global financial conditions and may be an underappreciated driver of recent cross-asset strength.
Liquidity, not fear, is doing the heavy lifting and for now, that remains the dominant force shaping price action.
As for bitcoin, it is not a question of if, but when it breaks to new highs.
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