Hormuz Deal Reshapes Oil, Dollar, and Rate Paths

A memorandum of understanding between the United States and Iran could be signed as soon as Sunday in Geneva, Bloomberg reported. The terms would see the US lift its naval blockade around Iran, while Tehran reopens the Strait of Hormuz and restores shipping flows to pre-war levels within 30 days.

Trump called off planned strikes on Iran Wednesday and announced a framework that mirrors negotiations underway for months. The deal, if confirmed, removes the single biggest supply-side risk in global energy markets – a closure that threatened to push oil prices well above current levels.

The 30-day normalization window is the most immediate macro trigger. Oil prices had been pricing in a disruption premium that fed into inflation expectations and bolstered the case for the Federal Reserve to raise rates further. Removing that premium lowers the inflation trajectory and, with it, the probability of additional hikes. Bloomberg's report noted that the mere expectation of normal Hormuz traffic would substantially reduce oil prices and inflation fears.

In the near term, the easing of oil-driven inflation pressure supports risk assets. Equities, emerging-market currencies, and commodity-linked currencies benefit as the dollar faces pressure from reduced rate-hike pricing and improved growth expectations. The dollar index has already slipped on the headlines.

The same report warns that the relief could be temporary. A negative oil supply shock turning into a positive demand shock – as financial conditions ease and spending picks up – could eventually force the Fed to raise rates again. That scenario depends on incoming data over the next few months. For now the market is getting a clear green light.

The signing is expected Sunday in Geneva, per Bloomberg. Iran has not yet confirmed attendance or terms.