Global markets are consolidating as attention stays on whether the US-Iran ceasefire will hold. Brent crude is below $100 a barrel, while stock and bond markets have paused after recent gains.
The MSCI world stock index reached a record high. Long-term sovereign bond yields are modestly lower across major economies, and the US dollar has been trading on the defensive after recovering the prior day’s losses.
BBH expects the dollar to be driven mainly by rate differentials in the coming months. It forecasts DXY will stay within its established 96.00–100.00 range over the next few months.
The bank says the energy shock may not be over, but expects the worst to be past, with end-March seen as the low point for risk sentiment. It also maintains a structurally bearish view on the dollar, citing concerns about US trade and security policy confidence, US fiscal credibility, and the politicisation of the Federal Reserve.
We recall how markets in 2025 consolidated around the US-Iran ceasefire, which helped keep risk sentiment stable and Brent crude oil prices under $100 a barrel for a time. That period of relative calm, however, has given way to new uncertainty. With recent satellite imagery showing renewed activity at Iranian nuclear sites, Brent crude has crept back up to $104 this month, reminding us that the energy shock may not be entirely behind us.
The view last year that the Dollar Index (DXY) would remain confined to a 96.00-100.00 range proved profitable for much of 2025 for those selling volatility. However, that range broke decisively to the downside as we entered 2026, with the DXY recently hitting a low of 94.75. This breakdown suggests the market is no longer solely trading on simple rate differentials.
Given that the old range has failed, implied volatility on dollar options is ticking up from last year’s lows, making strategies like selling strangles less attractive. We believe traders should now consider buying put spreads on dollar-pegged currency pairs. This allows for positioning for further dollar weakness while defining risk in what could become a more volatile environment.
The long-held bearish dollar arguments we noted in 2025 are now becoming the market’s primary focus. Concerns over US fiscal credibility, in particular, have grown as the Congressional Budget Office’s latest report puts the US debt-to-GDP ratio at 110%, a figure not seen since World War II. This fundamental pressure is likely to weigh on the dollar for the foreseeable future.
Furthermore, the Federal Reserve’s dovish pivot in the first quarter of 2026 has significantly altered the landscape from last year. While the European Central Bank has held rates steady, the Fed’s recent rhetoric has collapsed the dollar’s yield advantage. This shift is a key reason why the dollar has stopped responding positively to US data surprises.
