OCBC strategists Christopher Wong and Sim Moh Siong note that global markets are cautious as Hormuz risks and energy disruptions threaten to evolve into a broader energy shock. Survey data already show rising input costs and longer delivery times. They argue that a credible de-escalation in the Middle East would likely support global risk assets and non-US economies, allowing the Dollar to resume a shallow depreciation trend.

Energy risks key for USD direction

"Markets tread water as Hormuz risks and energy disruptions loom. Survey data already reflect a nascent energy shock. Escalation would trigger risk-off; credible de-escalation would favour global risk assets and a softer USD."

"The energy shock is increasingly visible in survey data, threatening to derail the anticipated improvement in sentiment. Recent global manufacturing PMIs show longer supplier delivery times, rising input costs and higher output prices, reflecting shipping bottlenecks and flight disruptions linked to the Middle East conflict."

"Looking ahead, a sharp escalation targeting energy infrastructure would likely trigger a decisive risk-off move. Conversely, credible signs of de-escalation should see the USD resume a shallow depreciation trend, as easing energy risks would favour non-US economies and global risk assets."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)