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Oil steadies after ceasefire-driven selloff
Markets seem to be trusting the ceasefire between Iran and Israel, and the dollar is back to testing its lows.
Oil rebounds after a 13% two-day decline, supported by US inventory draw and Middle East supply uncertainty.
Trump signals willingness to allow continued Iranian oil exports, but sanctions policy remains unclear.
Gold drops over 1% as risk sentiment improves and Fed officials push back against near-term rate cuts.
Dollar remains the weakest G10 performer this week, with September still priced as the most likely window for Fed easing.
Oil stabilizes after sharp two-day drop
Oil prices rose modestly on Wednesday, recovering from a steep two-day selloff that had erased more than 13% from recent highs. The rebound followed remarks from US President Donald Trump, who reiterated his desire to keep Iranian oil. Trump's comments, delivered via Truth Social, also included an invitation for China to continue buying Iranian crude, alongside hopes that Beijing would ramp up purchases from US exporters as well.
However, market sentiment remains cautious. A senior White House official clarified that US sanctions on Iranian oil exports remain in place for now, adding a layer of uncertainty over future flows. West Texas Intermediate (WTI) climbed back above $65 a barrel, while Brent approached $68, though both remain well below last week's levels.
US inventory data offers some support
In the US, the latest figures from the American Petroleum Institute (API) showed a larger-than-expected drawdown in crude stockpiles, with inventories falling by 4.28 million barrels last week. The market had only anticipated a decline of around 600,000 barrels. Refined product data was more mixed: gasoline stocks rose by 800,000 barrels, while distillate inventories fell by 1.03 million barrels.
This drawdown in crude adds a fundamental layer of support to prices, especially as traders weigh OPEC+’s upcoming production decision. The group is scheduled to hold a virtual meeting on July 6 to discuss a possible output increase for August, in response to shifting demand and price dynamics.
Gold retreats as ceasefire and Fed comments shift sentiment
In precious metals, gold prices fell more than 1% on Tuesday, testing the support of 3300$ per ounce. The retreat followed confirmation that both Israel and Iran were adhering to the ceasefire agreement, easing fears of further escalation in the Middle East. Additional pressure came from a stabilizing dollar and fading expectations of aggressive Fed easing.
Silver mirrored gold’s weakness, reflecting broader improvements in risk appetite. The Federal Reserve remains a key driver for precious metals markets. While recent dovish remarks from Fed Vice Chair Michelle Bowman and Governor Christopher Waller had opened the door for a possible July rate cut, subsequent comments from other Fed officials have pushed back on that idea.
Dollar remains soft but Fed cut bets shift toward September
The US dollar continues to struggle midweek, with the Dollar Index holding near recent lows and the greenback sitting at the bottom of the G10 currency rankings. The euro, sterling, and risk-sensitive currencies like the kiwi and aussie remain bid, while the yen and loonie lag behind.
Market-implied odds for a September Fed rate cut have climbed sharply, with futures now pricing an 85% chance, up from around 65% a week ago. The shift reflects softer inflation prints, rising geopolitical stability, and growing concern that US trade policy could dent growth in the coming months.
However, with the 90-day US reciprocal tariff truce set to expire in early July, uncertainty around the trade outlook remains a key risk factor. Without meaningful progress in ongoing negotiations, it’s hard to see the Fed moving as soon as July. September remains the more likely inflection point.
Powell reiterated caution on easing, and implicitly kept rejecting Trump's pressure, but also seemed modestly more open to discussing the conditions for starting cuts. Markets were actively searching for any minor signs of a dovish tilt after Waller and Bowman's calls for a July cut, and felt Powell's wording was enough, judging by the positive reaction in Treasuries. Is this negative for the dollar? We aren't convinced. There is a sharply USD-negative scenario where the Fed turns more abruptly dovish and markets doubt Fed independence. But in that scenario, Treasuries would come under pressure.
US-EU trade tensions add to global uncertainty
Trade relations between Washington and Brussels remain strained. European Commission officials have warned that the EU will be forced to “retaliate and rebalance” if the US pushes for a one-sided trade deal similar to its agreement with the UK. Although talks have reportedly gained momentum in recent days, time is short. Without a breakthrough, the risk of escalation could rise as summer approaches, adding another layer of volatility to an already fragile global economic outlook.
