Dollar Liquidity Supports Safe Haven Demand
The team says the USD’s liquidity supports demand in periods of stress. It also says the USD was relatively stable in the second half of last year, after an April 2025 fall tied to US tariff announcements. Rabobank expects concerns about a long-term decline in the dollar to ease. It says this could reduce market reluctance to hold long USD positions. For the rest of this year, it sees uncertainty around how the Federal Reserve responds to political pressure to cut rates while inflation rises. It links inflation risks to the closure of the Strait of Hormuz and higher energy and fertiliser costs affecting supply chains, including distribution and processing. Given that the dollar’s safe haven status has been confirmed by recent events, we should reconsider the market’s reluctance to hold long USD positions that we saw after the tariff scare in April 2025. With the dollar still on one side of nearly 89% of all global trades, its deep liquidity is undeniable. Therefore, using options to build long-dollar positions, particularly against currencies of nations sensitive to geopolitical risk, appears to be a sound strategy.Positioning For Volatility In The Weeks Ahead
The tension surrounding the Strait of Hormuz means we must prepare for continued market volatility in the weeks ahead. This isn’t a time for clear directional bets but rather for strategies that profit from price swings. We should look at buying straddles or strangles on major currency pairs, which will benefit from a significant move in either direction as the market digests news from the region. The Fed’s situation is now complicated, as it must balance inflation driven by higher energy costs against political calls for easing. This uncertainty makes the outcomes of upcoming FOMC meetings a key source of potential market turbulence. We can use derivatives on Fed Funds futures to position for a larger-than-expected rate move, as policymakers are forced to react decisively to either the inflation or political pressure. Higher energy and fertilizer costs will ripple through the global economy, creating clear winners and losers. We should use futures to take long positions in crude oil while also considering shorting the currencies of energy-dependent emerging markets that will suffer most. We saw a similar dynamic during past global shocks, like in 2020, where capital fled from riskier economies directly into the dollar. Create your live VT Markets account and start trading now.
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