The ball is now in Iran's court, so what to expect
In a world full of uncertainty, Donald Trump seems determined to drag the United States into a new conflict in the Middle East, this time with Iran.
What was surprising was Trump's announcement of an attack on a sovereign country via a social media post, in an unusual precedent in international diplomacy.
Between speech and practice
Despite the US administration's assertion that it is not seeking war and is not aimed at regime change in Tehran, Trump's recent tweets contradict this official rhetoric, further fueling speculation about the real intentions of the United States.
In contrast, Iran has so far refused to respond to the US attack, despite the approval of its parliament for a potentially bolder step, namely the closure of the Strait of Hormuz.
But the final decision requires the approval of Iran's Supreme National Security Council, leaving the door open to multiple possibilities.
Market repercussions: oil and the dollar
Financial markets were not far from these developments, the US dollar rose slightly driven by higher oil prices due to recent tensions, not because of its status as a safe haven, as oil prices jumped by 2%, but did not reach their record levels recorded months ago, especially in light of OPEC's ability to pump additional supplies if necessary.
In contrast, Wall Street stock futures and European markets fell, while US Treasury bond yields rose slightly, indicating that investors are not resorting to traditional safe havens significantly.
But the biggest threat lies in rising energy costs, which could increase inflationary pressures in a US economy already suffering from the effects of tariffs.
The challenges of the Federal Reserve
Federal Reserve Chairman Jerome Powell is preparing to face tough questions during a congressional hearing this week, in particular about the repercussions of the escalation with Iran on the US economy, as well as about Trump's public threats to fire him.
The focus will also be on how the central bank will cope with sudden demands to cut interest rates, at a time when the members of the Federal Open Market Committee are still cautious.
Market forecasts currently indicate a 70% probability of a rate cut in September, compared to only 16% in July, reflecting the state of waiting that investors are living.
What awaits the markets today?
Key data that may affect the markets on Monday
- EU and UK purchasing managers indices data to gauge the health of European economies.
- The speech of ECB President Christine Lagarde, which may give hints about the bank's policy in light of multiple crises.
- The emergence of a number of Fed officials, including Vice President Richard Clarida, who may provide insights on the course of monetary policy.
In the end, while the market hopes that the situation will not escalate, Iran remains faced with difficult choices: responding to the US strike may open the door to a wider confrontation, while refraining from responding may be interpreted as weakness.
The ball is now in Tehran's court, and the next decision may shape the fate of the entire region.
