Energy markets reacted sharply to a pullback in US-Iran tensions, with Brent crude dropping 5%, highlighting investor caution amid geopolitical swings. While the Fed remains in no rush to cut rates, the broader debate over de-dollarization is gaining momentum, especially as US Treasury data may show foreign portfolio adjustments, ING's FX analyst Chris Turner notes.

Beige Book shows no urgency for Fed rate cuts

"Where the frantic geopolitical opening to 2026 connects with financial markets has largely been in the energy space. The latest swing here was a 5% drop in Brent crude last night as President Trump seemed to step back from imminent military action in Iran. These swings serve as a reminder that investors remain reluctant to chase new themes emerging from Washington on fears of policy reversal. That is probably the reason that the dollar and Treasuries have not sold off on the legal investigation into Fed Chair Powell."

"Ultimately, however, we think this attack on the Fed will add to the case for de-dollarization. On that subject, tonight sees the release of the US Treasury TIC data for November. Foreigners only net sold US portfolio assets in the single month of April last year, and last year's 10% dollar sell-off was a function of hedge adjustments, not outright asset sales. Still, we will want to see what the official sector is doing with Treasury holdings, where China has downsized in four of the last six reporting months."

"Last night's release of the Fed's Beige Book suggests the central bank will be in no hurry to cut. Activity was flat to higher in eight of the 12 Fed districts, and there was no sign of any deterioration in the labour markets. Having pushed expectations of Fed policy easing this year back to a cut in June and then December, the next move in the rates market could be to price out the second Fed rate cut this year – a dollar positive."