Today, the dollar has been gaining strength, with the dollar-yen pair reaching the 142 yen range, thanks to the rise in US bond yields. In the short-term financial markets, the probability of a 25 basis points rate cut at the US Federal Open Market Committee (FOMC) meeting scheduled for January 31st has decreased to around 10.9%. At the end of last year, it was at 19.6%. However, the probability of no rate change remains high at 89.1%, and the prevailing market sentiment is leaning towards no change.
In terms of short-term inflation risks, the surge in oil prices is worth noting. The situation in the Red Sea regarding Iraq is being closely monitored, and there are concerns that it could disrupt oil supplies.
The recent US airstrike in Iraq, aimed at deterring Iran and militia groups, is indeed a situation that could lead to further tensions and escalations in the region. As a result, oil prices are a key area to watch, as any disruption in oil supply from the Middle East could impact global energy markets.
The markets are currently pricing in a low probability of a rate cut at the upcoming FOMC meeting, but geopolitical events like this can introduce uncertainty and impact market sentiment. So, it’s important to stay vigilant and monitor developments in the region and their potential effects on oil prices and financial markets.
