Author: IntaCapital Swiss

What is the “Taco Trade” and How is it Prevalent in Today’s Markets

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You might mistake this for a new Mexican futures derivative, but as financial commentators advise, the word TACO is an acronym for “Trump Always Chickens Out”. It describes a strategy where investors “buy the dip”* after a sell-off caused by a Trump policy threat, betting that he will eventually back down or soften his stance.

*Buy The Dip – This is a strategy which involves the buying of assets such as stocks and shares, cryptocurrencies and commodities such as gold and silver, where the aim is to buy low and then profit from the subsequent rebound. Experts advise it works best in long-term upward trends where temporary price dips occur. However, in today’s world, the Middle East crisis together with remarks from President Trump makes buying the dip an almost weekly occurrence. 

There are three stages to this trade:

  1. First, there is the shock when President Trump makes a bold announcement, such as an increase in tariffs, or in today’s world, military attacks and threats. Such actions can cause share and gold prices to drop, sparking off a round of intense market volatility. 
  1. The second stage is the Pivot where faced with negative market reactions or economic pressure, the President softens his stance or rhetoric, delays implementation, or negotiates a framework. 
  1. Finally, there is the Rebound where the threat is reversed, markets recover quickly allowing those who bought at low prices to sell for a profit. 

The TACO trade was initially brought to the fore on Liberation Day, 2nd April 2025, when President Trump announced a steep imposition of tariffs on friends and foes alike, with about 90 countries being hit with blanket tariffs. However, President Trump quickly backed down on his Liberation day tariffs, (except for China) as markets reacted by going into meltdown, and tariffs that were threatened on the Eurozone in May 2025 were quickly pulled back days after they were announced. 

A number of traders in the financial markets accused President Trump of chickening out and started making trades accordingly and thus the TACO trade was born. Today the Taco trade has been reborn with some vengeance due to the surprise attack on Iran by President Trump. The use of Truth Social by President Trump during the current US/Iran/Israel conflict has already upended markets. Recently, he rowed back on threats to hit Iran’s power plants.

So, President Trump chickened out and as a result of his pronouncements stocks rallied, oil prices dropped as he bought time for further negotiations. On another recent occasion, the President announced he was in talks with Iranian officials to end the war, once again oil fell, gold went up, and stocks went up. Iran announced that no talks had been held and the markets swung into reverse with gold going below the support level of $4100 per oz before rebounding to circa $4,400. The TACO trade is back and with markets as volatile as ever, will traders be able to predict what will come forth from Trump’s media outlet Truth Social. 

Is Gold Losing Its Lustre?

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In times of market turmoil and geopolitical unrest , gold is considered to be a safe haven with investors flocking to buy the yellow metal. However, at the close of business last Friday, gold extended its slide into a third consecutive week losing more than 6.00% and setting a record as its worst weekly performance since March 2020. Indeed, gold has shed more than 20% since the US/Iran/Israel conflict began and is currently trading at circa $4,400  – $4,435 per oz (showing great market volatility), from a high in late January of this year of just over $5,595 per oz.

The Impact of Monetary Policy and Inflation

Experts advise that gold is less appealing when interest rates remain high, and with energy costs surging due to the Middle East crisis, financial markets see the distinct possibility of interest rate hikes by central banks to ward off an increase in inflation. Both the Federal Reserve, the BOE (Bank of England) and indeed the ECB (European Central Bank), all held interest rates steady last week with money markets locking in bets for interest rate hikes this year by all three banks.

Central Bank Commentary and Market Expectations

In the Euro area, Joachim Nagel, a Governing Council Member of the ECB has said, “as things currently stand, it is conceivable that the medium-term inflation outlook could deteriorate and inflation expectations could rise on a sustained basis, meaning that a more restrictive monetary policy stance would probably be necessary”. There has been no official comment on interest rate hikes by the BOE, though they did highlight last Thursday concerns on the inflation front due to the Iran crisis. However, traders are betting on four interest rate hikes this year at 25 basis points per hike. 

ETF Outflows and Comparisons to 1983

Despite escalating geopolitical risk and geo-economic fallout due to the Middle East Iranian crisis, gold has failed to capitalise on its status as a safe haven, with data showing net outflows for gold ETFs reaching circa sixty tons since the start of the Iranian conflict. Analysts suggest the rapid fall in the price of gold is due to investor profit taking combined with sales of gold due to a higher dollar and rising interest rates. The last time gold plummeted so sharply was in 1983, when oil revenues collapsed and Middle Eastern oil producers dumped gold. 

Technical Support Levels and Market Volatility

Experts originally suggest that investors should look to a support level of $4,100 for gold if oil stays elevated, and an increase in bets on rate hikes by the financial markets keep ballooning. However, recently, gold briefly fell through the support level to $4,097.60, but as mentioned above it is currently trading in a range of $4,400  – $4,435 per oz. The gold market is experiencing extreme volatility as shifting investor sentiment and risk appetite, combined with algorithmic trading, continue to exacerbate price movements.

Geopolitical Outlook and Future Headwinds

The outlook for gold is based on the crisis in the Middle East, and if the situation moves towards a ceasefire, then rate hike expectations should diminish and should, experts say, trigger a recovery towards circa $4,800 – $5,000. Any movement in gold will also depend on the outlook from the Federal Reserve, with experts pontificating that if they look through the oil-driven inflation spike, it would remove a lot of the headwinds from gold. However, they went on to suggest that any increase in hawkish commentary would drive gold further down to new support levels. 

The Long-Term Investment Case

A number of analysts suggest that the fall in the gold price is a tremendous opportunity for investors to start buying, especially a staggered entry for long-term buyers. Analysts look to previous bull runs in 1971 – 1980 and 2001 – 2010 which saw a number of retreats that did not nullify any potential gains. Therefore, experts are suggesting that when the Iranian conflict is over, and the pressure on interest rate hikes deflate, gold will probably resume its safe haven status and prices will accordingly head north. However, analysts warn that the pace of any recovery in gold could be impacted by how long it takes for supply lines to recover. 

United Kingdom Suffers Cost of Borrowing and Energy Shocks

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The cost of borrowing for the UK government has soared to its highest level in eighteen years (when the global financial crisis 2007 – 2009 gripped the world) due to the economic shocks emanating from the US/Iran/Israel conflict. The Strait of Hormuz remains closed and 1/5 of the world’s crude oil remains in the ground, building fears of inflation shocks to many countries. In the United Kingdom, as of close of business on Friday 20th March, 10-year Gilts yields (a benchmark for government long-term borrowing costs) rose by 0.76%, capping a 5.00% rise since the start of the war in the Middle East. 

A Comparison with Global Markets

Experts suggest that the sell-off in UK government bonds is even more brutal than in 2022 when the previous Prime Minister Liz Truss introduced her mini-budget, which resulted in the UK government bond market taking a heavy beating. Analysts point to the fact the jump in the UK’s borrowing costs has not been matched in other economies, for example the corresponding rate on the 10-year German government Bund is only up 0.38% and in the United States the US treasury benchmark borrowing costs are up 0.41%. 

The UK’s Energy Vulnerability

Analysts point to why the UK government bond market is having a much worse time than many of their counterparts, which is due to the economy being more vulnerable to oil and gas price rises than many of their peers. In 2024, data shows that 35% of the UK’s total energy consumption was made up of natural gas (Europe’s reliance on gas is now only circa 1/5th of total energy consumption), which heats the vast majority of homes in the United Kingdom. This sadly reflects on the government once again not learning from the energy shock created by the invasion of Ukraine by Russia on 24th February 2022. The UK is therefore much more vulnerable to imported inflation (America being fairly secure as a net exporter of LNG). Data released shows that UK 1-year inflation expectations have risen 1.8% since the US/Iran/Israel conflict began, a much bigger increase than their peers in the USA and the Eurozone. 

Inflation and the Interest Rate Outlook

UK government bonds are highly sensitive to rising inflation; notably, 2-year gilt yields, which track Bank of England interest rate expectations, recently climbed to an over a year high of 5.35%. Brent Crude is currently trading at $106.77pbl with market expectations of the price going higher the longer the Strait of Hormuz remains closed, and money markets are now anticipating a rise in interest rates of 75 basis points this year. The energy shock is exacerbating the outlook on inflation and as the cost of borrowing rises, so will the effect on businesses and consumers in the United Kingdom. Already, costs of both diesel and petrol at the pumps have gone up, as have certain foods in the supermarkets.

The Impact on Households and Industry

Householders in the UK are already seeing mortgage deals pulled from the market, and as of July, this year consumers have been warned to expect a whopping 20% increase in energy bills. This increase could prove devastating for many households who are already struggling to pay their energy bills at today’s prices, especially alongside fuel and food price increases, making a very hard second half of 2026 for consumers. Elsewhere, in the airline industry, experts suggest that around the top 20 quoted airlines have lost a combined total of $54 billion in market value. The price of an airline ticket is also about to go through the roof due to jet fuel more than doubling in price since the Middle East conflict began. Despite the tendency for official narratives to focus on external pressures, consumers continue to face the direct consequences of these price spikes as historical economic patterns repeat themselves.

ECB Keeps Interest Rates on Hold

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The ECB today joined the Federal Reserve and the Bank of England in a unanimous decision to hold its benchmark deposit rate at 2.00%, where it has remained since June 2025. Analysts advise that policymakers will wait and assess the impact on growth and inflation as the Middle East conflict drags on. Experts suggest that the ECB is well ahead of its peers with inflation just about on target and with interest rates at 2.00%, which gives them headroom to adjust to on-going outside pressures.

The President of the ECB, Christine Lagarde, has said the ECB is well placed to handle war risks. She added, “We are both well positioned and equipped to deal with the development of a major shock that is unfolding and we are going to continue what we have been doing.” Analysts confirm that ECB appears to be in a better position than when Russia invaded Ukraine, and in response to reporter’s questions on the subject, she said, “In those four years, we have learned, we have improved our models, we have changed our strategy and we are now more attentive to risks around the outlook.” 

Inflation Risks and Economic Skew

Officials of the ECB noted that, “War will have a material impact on near-term inflation through higher energy prices. Its medium-term implications will depend both on the intensity and duration of the conflict and on how energy prices affect consumer prices and the economy.” President Lagarde also noted that inflation is somewhat skewed to the upside, whilst conversely risks for the economy are skewed to the downside. It is worth also noting that a spike in prices could be reinforced by disruption to global supply chains, faster wage growth and higher inflation expectations. 

Energy Security and Supply Chain Vulnerabilities

Analysts have warned that the ECB should not be too complacent in regard to potential energy shocks that could impact inflation, because if the war goes on for a few more weeks, there will be a scramble for LNG. Europe is at a seasonal low for gas storage, and with Asia struggling for gas supplies the result could be a head-to-head competition between Asia and Europe keeping prices elevated. Experts advise that even if the war ended tomorrow, it would take a long time to get supply chains back to normal. 

Market Forecasts and Inflation Swaps

Money markets have priced-in two full 25-basis point increases by the ECB by October this year, with the first rate increase expected sometime during the summer. Driven by surging energy costs, short-term inflation expectations have shifted sharply higher, with one-year euro inflation swaps* doubling to 4.00% today from sub-2.00% levels earlier this year. Policymakers at central banks around the world are expected to remain vigilant and the IMF (International Monetary Fund) have advised policymakers to stay nimble. 

*One-year Euro Inflation Swaps – An OTC (over-the -counter) derivative contract used to transfer risk, where one party pays a fixed rate (the swap rate) and the other party pays a floating rate linked to realised Eurozone inflation over a one-year period. These swaps are typically based on the Eurostat Harmonized Consumer Prices (HCIP)** excluding tobacco.

** HCIP (Eurostat Harmonized Consumer Prices excluding tobacco) – A specialised consumer price index (inflation measure) that covers all goods and services in the standard HCIPM basket excluding tobacco products, specifically targeting the removal of price changes relating to smoking. It acts as a sub-aggregate designed to measure inflation while excluding the direct, often policy-driven price fluctuations of tobacco. 

The Federal Reserve Keeps Interest Rates on Hold

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Today, the FOMC voted 11–1 to maintain its benchmark interest rate at 3.50%–3.75%, marking the second consecutive meeting of unchanged policy. The one dissenting vote came from Governor Stephen Miran, who called for a rate reduction of 25 basis points. Policymakers acknowledged that due to the Iranian conflict in the Middle East, they now face increased uncertainty on how this will impact the economy, with Chairman Powell stating in a post-meeting press conference, “The thing I really want to emphasise is that nobody knows.”

Inflation Outlook and Rate Cut Criteria

On the inflation front, officials have raised their outlook in 2026 from 2.40% to 2.70%, still above the Federal Reserve’s target of 2.00%, and analysts point to the fact that inflation figures have been above target for the last five years. Chairman Powell advised that they need to progress in reducing inflation in order to lower interest rates, saying that, “If we do not see that progress, then we won’t see the rate cut.” He went on to point to goods inflation that had increased due to tariffs, and indeed officials pointed to core inflation (excludes food and energy prices) which they also indicated will rise to 2.70%.

Energy Volatility and Meeting Deliberations

In the post-meeting press conference, Chairman Powell was questioned on rising oil prices. He noted that policymakers typically look through energy spikes, as such fluctuations often have only a transient impact on long-term inflation. The Chairman also advised that the possibility of a rate hike was discussed at some stage, but was quick to point out that most members of the FOMC did not see this as their base case. As usual, President Trump had called for a rate cut, but with the current events in the Middle East and current inflation figures, this seemed hardly likely to be on the FOMC’s agenda which of course was borne out by their vote. 

Market Expectations and the “Dot Plot”

Financial markets had priced in a near 100% bet that the FOMC would hold rates this time around. Currently, consensus pricing reflects a 94% to 95.7% probability of another hold at the upcoming April meeting. Experts suggest that money market sentiment will be only one more 25 basis points this year, most likely in either September or December. The FOMC uses the “Dot Plot”* as a major guide to future interest rate decisions, and currently analysts advise that consensus has shifted toward higher-for-longer with 14 of the 19  members now predicting no change or just one cut.

*Dot Plot – This is a chart that is published by the Federal Reserve that shows where each FOMC member expects interest rates to be in the future, with each dot representing one policymaker’s projection as to where the Federal Funds rate will be at the end of any given year, with the median dot receiving the most attention. Financial markets read and assess the implications of the dot chart and if the median dot shifts higher, then it may be interpreted as a hawkish stance. If it moves lower, it can be interpreted as a dovish stance. 

Leadership Succession and DOJ Investigation

Finally, and in a surprising statement regarding his immediate future, Chairman Jerome Powell stated that he had no intention of resigning as a member of the Federal Reserve’s Board of Governors until the investigation by the DOJ (Department of Justice) into the Fed’s building renovation is over. He went on to state that his Chairmanship ends this May, and if his already presidential nominated successor (Kevin Warsh) is not confirmed by the Senate by the end of his term, he will stay on as a chair pro tempore. In the past, the Federal Reserve has approved such a nomination. As one Senator has promised to withhold his vote until the DOJ investigation is dropped, no doubt this will increase President Trump’s angst towards Chairman Powell.

Russia is Reaping the Rewards from the Iranian Conflict

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While the U.S. and Israel continue their military operations to undermine the Iranian government, Tehran’s drone and missile capabilities remain a persistent threat to the Gulf States. With the Strait of Hormuz now largely closed to commercial shipping, the global economy faces a mounting energy crisis with no immediate resolution in sight. Oil prices continue to spike and so the White House has lifted sanctions (30 days only) on those countries who wish to buy oil from Russia, thereby enabling the Kremlin to fill their coffers and fund the on-going invasion of Ukraine. 

The Kremlin’s Strategic Windfall: Market Benchmarks and Sanction Waivers

While the current international climate provides President Putin with renewed regional leverage, observers note that U.S. diplomatic maneuvers have largely foreclosed any near-term opportunity for a negotiated settlement with Russia. Data released shows that Putin is enjoying a win-double as Russian export prices have spiked thanks to the global oil benchmarks going through the roof due to the US-Israel-Iran conflict. If the conflict is not resolved soon, experts suggest that further sanctions easing could well become a reality. And indeed, the current waiver has helped clear a flotilla of tankers that are full of Russian crude oil, of which many are now heading or have arrived in India.

Friction Within the Alliance: Kyiv’s Response to U.S. Policy Shifts

Ukraine and its allies in Europe have slammed the decision by the White House to partially waive sanctions against Russia, as the Strait of Hormuz remains closed to tanker traffic. Indeed, analysts advise that American efforts to bring the Russian/Ukraine war to end have stalled, and Ukrainian President, Volodymyr Zelensky, said that the sanctions lifting will strengthen Russia’s hand. President Zelensky went on to say, “Just this easing by America could provide Russia with around $10 Billion for the war. This certainly does not help peace.”

European Security Concerns: Diverging Perspectives in the G7

A number of European leaders have spoken out against the US administration, easing sanctions on Russia with the president of the European Council, Antonio Costa, saying, “The move is very concerning as it impacts European security.” The German Chancellor, Friedrich Merz, said, “Easing of sanctions now, for whatever reason, is wrong. We believe that is the wrong course of action, after all we want to ensure that Russia does not exploit the war in Iran to weaken Ukraine.” 

Quantifying the Conflict: Fossil Fuel Revenue and Military Capacity

Experts advise that whichever way you look at it, Russia has definitely profited from the Iranian conflict, not only from the spike in oil prices but also from the 30-day waiver in sanctions on those countries buying Russian crude.  A German NGO, known as the Centre for Research on Energy and Clean Air, says that Russia has so far earned circa Euros 6 Billion from fossil fuel exports since strikes on Iran began on 28th February 2026. They went on to say that current levels of earnings by Russia from fossil fuels allows them to buy circa 17,000 Shahed, 136 attack drones every 24 hours, and analysts advise that sanction waivers could push this total even higher. 

The On-Going Effect of the US-Israel-Iran Conflict

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The on-going Iranian conflict is affecting many aspects of life across the globe, the most notable being the price of oil and its derivatives. The price of oil remains very volatile, a week ago today the price opened at circa $120pbl and closed at circa $81.50pbl, and today Brent Crude is trading at above $104pbl. 

The knock-on effect will be felt by consumers across the globe as prices go up for heating, fuel at the pumps, food etc. Governments will be keeping a watchful eye on their own CPI (Consumer Price Index), as inflation will once again begin to rise. However, as outlined below, it’s not just the cost of crude oil that the conflict is pushing up.

Fertilizer Crisis

Fertilizer is essential for food production, however, just before spring which is many farmers’ planting season, the Iran Conflict is pushing up the cost of nitrogen products such as urea and ammonia. Urea for example is primarily used as a highly concentrated nitrogen fertilizer that promotes vigorous plant growth and has a nitrogen content of 46%, an essential tool for modern farming. Due to the current conflict, the price of Urea has surged by circa 34% to $600/T, and this together with other essential raw material will mean higher prices in the supermarkets with farmers across the globe rushing to secure critical fertilizers. 

Palm Oil

Due to the on-going Iranian crisis, Palm Oil futures are now over $100pbl as prospective demand for biofuel feedstocks spike and is almost at a parity with gasoil*. Palm oil is a versatile vegetable oil found in nearly 50% of packaged supermarket products. It is also a key ingredient in cosmetics, cleaning supplies, and biofuels, and is frequently added to livestock feed, especially in the dairy industry, due to its exceptionally high energy content.

*Gasoil – (AKA red diesel or tractor diesel) is a low-duty, red-dyed fuel identical to regular road diesel but restricted to off-road industrial, agricultural and heating use. It is a middle distillate derived from crude oil refining, primarily powering machinery such as tractors, cranes and generators. 

Global Food Supply

Farmers across many regions including Europe and Asia, are vulnerable to an oil and gas crunch due to the Iran conflict, and the scarcity of fuel will make it difficult to operate essential farm machinery. For example, in Bangladesh, farmers are unable to start their irrigation pumps due to the lack of diesel. In Australia, it is almost the planting season, and farmers have been advised of fuel delivery cutbacks. In the Philippines, it is predicted that fishermen and boat owners will not be able to go to sea.

Europe is also vulnerable, for example in Germany 100 litres of diesel is up by EUR 30, and in Romania, farm diesel prices have jumped about 30%. A UK farmer highlighted that existing diesel stocks will be exhausted by mid-spring. Beyond that point, agricultural operations will be forced to pay the prevailing market rate, provided that fuel supplies remain accessible.

Fuel Oil 

Fuel oil powers container ships and is the backbone of globalisation,  however, the price of this commodity is skyrocketing. Fuel oil is also known in the industry as the “bottom of the barrel”, and is usually cheap, flying under the radar compared to the more well-known fuels (that get distilled higher up petroleum distillation towers) such as gasoline, diesel and jet fuel. 

The shipping industry is now sounding the alarm as it’s not only the price of fuel oil that is worrying, some of the key ports across the globe may run out of stock forcing bulk carriers and container ships to halt in their tracks. Recent data released shows that fuel oil in two of the top three bunkering locations (Fujairah UAE and Singapore) are beginning to run very low on stocks. If the conflict continues for a couple months, fuel oil will become a major problem. 

Conclusion

Analysts warn that if geopolitical tensions are not resolved swiftly, the global cost-of-living crisis will intensify, potentially causing inflation to become entrenched across G7 economies once again. This means that central banks may be forced to increase interest rates, thereby increasing the cost of borrowing, energy and food, which will be very hard on consumers. 

Plan B for Trump Tariffs

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The Section 301 Pivot: A New Framework for Trade Enforcement

Acting on behalf of President Trump, the U.S. Trade Representative is launching Section 301 investigations into more than twelve major economies. Jamieson Greer, the U.S. Trade representative, stated that this action takes centre stage to replace the tariffs, which were struck down by the Supreme Court of the United States* and will focus on those economies that have alleged excess manufacturing capacity. Upon completion of the investigations, President Trump will be allowed to unilaterally place tariffs on those countries who are deemed to engage in unfair trading practices.

*Supreme Court Ruling – In a landmark 6–3 decision on Friday, February 20, 2026, the Supreme Court struck down President Trump’s global tariffs. The justices ruled that the President exceeded his constitutional authority by invoking a federal emergency-power law to unilaterally impose the levies.

Navigating Post-Ruling Volatility: The Administration’s Strategic Shift

These investigations are the administration’s attempt to replace the tariffs that were struck down by the Supreme Court in February this year. The landmark decision took away a central pillar of the Trump presidency, whereby the President could unilaterally impose tariffs and use them as leverage in negotiations with many countries, especially those who are key trading partners. Jamieson Greer also stated, “Our view is that key trading partners have developed production capacity that is really untethered from the market incentives of domestic and global demand.”

Geopolitical Risk: Major Trading Partners Under the Microscope

Economies that are under the microscope are China, the EU (European Union), India, Japan, Mexico, South Korea and Taiwan, all of whom represent some of the largest and leading trading partners. Experts predict that by targeting Mexico, the US-Canada-Mexico Trade Agreement that is currently under renegotiation could make existing tensions even worse. Interestingly, Canada is not among any of the nation’s being targeted by the administration’s new tariff drive, however, with an impending summit between the US and Beijing coming up shortly, the new tariff drive could well increase tensions between the two countries.

Sector-Specific Vulnerabilities: Addressing Global Overcapacity

In a Federal Register filing, the Office of the United States Trade Representative (USTR) alleges that the above-mentioned economies enjoy overcapacity. The filing singles out the EU, especially Ireland and Germany, regarding machinery, vehicles, and chemicals, while accusing Taiwan of overproduction in the semiconductor chips and electronics sectors.

The USTR is also citing examples of non-US firms expanding overseas, in particular the Chinese auto maker BYD Co. They continued by stating the other sectors that have over capacity, which are: aluminium, automobiles, batteries, electronics, machinery, paper, plastics, robotics, satellites, semiconductors, ships, solar modules and steel. 

The Future of Trade Policy: Implications for Global Supply Chains

With regard to the abovementioned sectors in the same Federal Register Filing, officials from the USTR have said, “In many of these sectors, the United States has lost substantial domestic production capacity or has fallen worryingly behind foreign competitors.” 

Experts suggest that the new wave of investigations has signalled an increase of trade enforcement, furthermore, the administration will be launching investigations on circa sixty countries relating to a ban on imports that are made with forced labour. Experts predict that the White House will continue down the tariff road with such expectations being borne out by Jamieson Greer, who has said, “The policy remains the same. The tools may change, depending on the vagaries of the courts and other things, but the policy remains the same.”

The Reserve Bank of Australia Hikes Interest Rates

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Today, the RBA (Reserve Bank of Australia) raised its key interest rate by 25 basis points from 3.85% to 4.10%, with the nine-member policy committee voting by 5 – 4 in a split decision. In 2023, officials delivered three rate cuts, and today’s first back-to-back rate hike since 2023 reverses two of those three cuts. After the vote, Governor Michelle Bullock advised that the Iranian conflict in the Middle East represented part of the decision to hike rates, but pointed out that prices still remained too high.

The Deputy Governor of the RBA, Andrew Hauser, has already echoed the Governor’s words in a statement last week when he advised that price rises driven by the Iranian conflict would not be helpful in combating inflation. Experts suggest that a rise in interest rates was on the cards, and perhaps the on-going conflict in the Middle East fuelled the debate as to whether to hike interest rates now or at the next policy meeting.

In February this year, officials from the RBA had forecasted that the CPI (Consumer Price Index) would peak at 4.2%, this was partly based on the technical assumption that crude oil would remain at circa $63.8pbl through to 2028, but today, Brent Crude is trading between $103pbl – $104pbl. However, the Treasurer of Australia, Mr James Chalmers, has announced that he anticipates inflation rising to 4.5% and that households can expect increased cost of living expenses. Today, he went on to say that Australia already had an inflation challenge, but the war in the Middle East is making this challenge worse. 

Many experts and analysts are expecting another 25-basis point hike in May, and if the Iranian conflict is still going on and oil surpasses the $150pbl mark, the increase could be even higher. Elsewhere in Indonesia, BI (Bank Indonesia) held its benchmark interest rate (BI-Rate) at 4.75%  marking a continued stance of stability amid the on-going Middle East conflict and other geopolitical and geo-economic unrest. However, the Middle East conflict has brought Asia and South East Asia to the forefront of the oil crisis and only time will tell how their economies will react.

The Trump Factor: Navigating Oil Volatility, Interest Rates, and the Iran Conflict

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The Emergence of a New Financial Fundamental

Experts advise that President Donald Trump has now become a financial fundamental*. Based on market analysis between early 2025 and today, his public statements, executive actions and social media posts have acted as immediate drivers of financial market volatility. Analysts now suggest that President Trump acts as a fundamental factor that traders and investors must track in order to manage risk. A recent example was President Trump’s announcement that the war would be ending soon, sending the US Dollar up and gold and crude oil down. 

*Financial Fundamentals – Geopolitical and economic data or statements released into the financial world that affect the prices of commodities, bonds, currencies, interest rates, futures etc., depending on the interpretation by traders and investors. 

Market Reaction to Geopolitical Tension

This week, market volatility has been rampant following mixed messages regarding Iran. Oil prices opened Monday by skyrocketing to over $120/bbl, while US stock futures initially tumbled. However, after President Trump announced the conflict would soon end, the S&P 500 posted its largest one-day rally in a month, while oil plummeted back below $90/bbl.

Volatility and the Fear Gauge

Trump continues to fan the flames of market volatility, which has reached its most intense levels since the ‘Liberation Day’ tariffs of last April. Reflecting this turbulence, the VIX (Cboe Volatility Index) surged past the 35 mark on Monday, more than doubling its value since the start of the year.

*Cboe Volatility Index –  The Chicago Board Option Exchange Volatility Index was introduced by Cboe Global Markets in 1993 and is referred to as VIX. This is a market index that measures the implied volatility of the S&P 500 Index (SPX) – the core index for United States equities.

Crude Oil and the Strait of Hormuz Crisis 

Brent Crude Oil has also seen wild fluctuations this week, spiking at just under $120pbl on Monday and dropping to a low of $81.16pbl on Wednesday. This was due to mixed messages from the White House with Energy Secretary Chris Wright, who posted then deleted a message confirming the US Navy had successfully escorted a tanker through the Strait of Hormuz, which as it turned out was blatantly untrue. The Strait of Hormuz, the critical gateway out of the Persian Gulf, remains closed and as such, oil is currently trading at $92.54pbl.

ECB Policy and Inflationary Pressure

Elsewhere, officials of the ECB (European Central Bank) have suggested that the next meeting of the Governing Council might see a change in policy towards interest rates. Currently, an increase in policy rates may be on the cards as they keep an eye on inflation. Interest rates are currently hovering around the ECB’s benchmark target of 2.00%, but analysts advise that money markets have increased bets on the tightening of monetary policy, as energy costs skyrocket putting upward pressure on inflation.

Central Bank Caution Amidst Global Uncertainty

Christine Lagarde, President of the ECB, has assured the Eurozone that the bank will act to prevent another inflation crisis similar to the one sparked on 24th February 2022 when the Russia-Ukraine conflict began. President Lagarde also stated, “Today there is so much uncertainty that I’d be incapable to say what we will decide at the upcoming policy meeting (18th – 19th March). We won’t rush into a decision because there is too much uncertainty, too much volatility.” While many observers agree with this statement, market analysts suggest that global stability would be much easier to achieve if President Trump and his administration moved away from the erratic rhetoric that continues to destabilize the markets.

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