MUFG’s Senior Currency Analyst Michael Wan highlights that Trump has begun a US naval blockade of the Strait of Hormuz, but risk assets have rebounded as talks between the US and Iran continue. The durability of this improved sentiment is seen as contingent on enforcement of the blockade and prospects for a deal, with Asian markets particularly exposed due to their reliance on Hormuz energy flows.

Hormuz tensions and Asian FX sensitivity

"Trump began a US naval blockade of the Strait of Hormuz, but overall risk assets rebounded with signs that there continues to be talks between US and Iran."

"We think there are both positives in terms of the progress in negotiations and technical discussions that have already been made, but also meaningful negatives from a potential flare-up in tensions and especially for Asian markets which are highly dependent on the Strait of Hormuz for energy flows."

"Overall whether this positive risk sentiment holds in financial markets will partly depend on the extent of enforcement of the current blockade, and whether there is a narrow path towards a deal."

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