Markets continue to absorb geopolitical shocks with surprising resilience this week. The Israel–Iran conflict, now entering its seventh day, may be dominating headlines, but price action suggests market is looking through the noise – for now. Let’s unpack what’s happened this week.
Macro: Fed Holds, Geopolitics Linger, Tariff deadline looms
It was a week dominated by central bank policy decisions. On the main docket, the Fed delivered a hawkish pause, pointing to a slower path to rate cuts amid rising tariff uncertainty. Inflation remains sticky, and the outlook is clouded- not only by the potential return of Trump-era tariff policy, but also by rising instability in the Middle East.
The Fed’s Summary of Economic Projections (SEP) reflected this caution. While markets still price in two cuts for 2025, the dot plot now shows a growing number of members projecting no cuts this year.
Longer-term forecasts have been revised upward:
- 2025 GDP lowered to 1.4%
- 2025 inflation raised to 3.0%
- 2026 rate forecast lifted to 3.6% (from 3.4%)
- 2027 rate forecast now sees rates at 3.4% (up from 3.1%)
Despite some softness in recent data, the path of least resistance remains higher for rates, and more precarious for risk assets.
That said, barring a sustained oil shock from Israel-Iran escalation, and if geopolitical risks start to recede, we think markets are still under-pricing the Fed’s capacity to ease.
On oil: while geopolitical stress remains high, the Strait of Hormuz remains open, and that’s keeping crude markets in check. Whilst Iran has signaled a willingness to re-engage negotiations, the Fordow facility is still a non-negotiable sticking point for both the U.S. and Israel. For the time being a durable diplomatic solution remains elusive but as long as flows through Hormuz remain uninterrupted, markets are unlikely to price in a sustained energy risk premium.
Elsewhere SNB formally returned to a zero-rate regime, cutting rates 25bps to 0% yesterday as was widely expected by the market. Swiss inflation turned negative in May (-0.1%YoY) driven in part by sustained franc strength underscoring SNB’s easing bias amid persistent disinflationary pressures. Unless geopolitics escalates again, USD/CHF could have further topside potential, though there is still some wood to chop before a retest of early April highs above 0.8800 set before the “Liberation Day” tariff war began.
Elsewhere, tariff tensions are resurfacing, with key deadlines now coming into focus. Markets may have tuned out the noise so far, but the calendar is closing in – and if history is any guide, Trump’s use of tariffs as leverage means this won’t stay quiet for long.
Crypto: Stuck in the Range, Waiting for a Catalyst
Crypto remains in limbo, with macro headwinds capping momentum. Risk perked up briefly this morning, with BTC pushing above USD106,000 and ETH holding above USD2,500, but the moves are still well within this week’s tight trading bands. Some of the lift may reflect geopolitical de-escalation, after U.S. Press Secretary Leavitt confirmed Trump will decide within the next two weeks on how to respond to Iran, while also stating there is a “substantial chance” of Iran returning to negotiations. In options, BTC front-end IV continues to hover below 40%, with ETH below 70%. RR’s nonetheless remain negative in both, underscoring a defensively positioned market and lingering downside concern.
While most asset classes brushed off the latest risk-off triggers, crypto may still act as the outlet for weekend volatility as other markets remain shut. Watch for weekend headlines to inject short bursts of price action, especially in thin liquidity environments.
Looking Ahead: Still Rangebound, But Not Risk-Free
Volatility may have subsided for now, but risks remain. All eyes will be on US and whether it will join Israel in escalating military action against Iran.
Markets have absorbed a barrage of missiles and tariffs – next up is the durability of this newfound complacency.
Today marks quadruple witching- when four major derivatives contracts expire simultaneously. Expect heightened volatility and elevated volumes, especially into the close, as markets reposition and rebalance.
In a market short on conviction, flows may move price more than fundamentals in the days ahead.
Read more News here.
Investments in virtual currencies are high-risk investments with the risk of total loss of the investment and you should not invest in virtual currencies unless you understand the risks involved with such investments. No information provided in this article or any attachments shall constitute investment advice. Crypto Finance AG excludes its liability for any losses arising from the use of, or reliance on, information provided in this article or any attachments.
