By Ahmad Assiri, Research Strategist at Pepperstone
Trump’s third extension on the reopening of the Strait of Hormuz is fast approaching, yet there is little in the current diplomatic backdrop to support any meaningful optimism. The gap between Washington and Tehran remains too wide, with no credible pathway toward resolution before tomorrow deadline.
What is instructive is not only the geopolitical narrative , but rather US Dollar holding above the 100 mark as the market clearest expression of seeking shelter. Flows are favouring yield and liquidity over traditional hedges with capital consolidating into the greenback rather than rotating into hard assets given that the yellow metal isn’t doing its job as it should be. This pattern is more consistent with expectations of a longer disruption scenario as we enter the 40th day of the conflict.
Energy markets are reinforcing that view with brent crude traded intraday firmly above $116 per barrel, expressing a genuine tightness in the physical market, with Asian delivery premiums widening. This shows real supply constraints and underscores the vulnerability of key Asian economies should disruptions persist. Equities, meanwhile, are adjusting to this regime. The S&P 500 trading below 6,600, around 6% off highs, alongside a VIX anchored in mid 20s, suggests markets have shifted into active risk management where the persistence of elevated volatility points to continuous hedging activity.
With diplomacy appears to be approaching its limits and more involved military options increasingly part of the equation, the asymmetry in outcomes remains skewed and the burden of proof sits with de-escalation. Until there is progress on reopening Hormuz, defensive positioning remains the rational baseline.
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