Testing market patience

Evidence tier: A1 Evidence type: Auto-discovered official publication Source: Convera Company News Official publication date: 2026-07-23 Captured: 2026-07-23T13:23:42.722Z

USD: Are we back to duration and degree?

Back in March, the core point around duration and degree was simple: the market impact of a Middle East shock depends less on the first headline and more on how long the disruption lasts, how intense it becomes and how far it spreads. Now, the clock seems to have restarted, putting that framework back into play. Brent is at $96 a barrel after renewed US-Iran escalation put Gulf supply routes back in focus. The question now is whether this latest oil move lasts long enough to reshape inflation and Fed pricing.

The first phase of the war did not create clear demand destruction, and the US consumer still looks well positioned than in past energy shocks. But another oil spike filtering through gasoline, freight and inflation expectations would be harder for the Fed to look through. If core inflation stays firm while energy turns higher again, markets could bring a Fed hike before year-end back into focus. That would make the shock less about growth fear and more about policy pressure.

Rates are already moving in that direction. The rise in crude has been mirrored by the two-year Treasury, while rate-hike expectations have risen enough to flatten the curve. The longer the escalation continues, the more aggressive that bear flattening can become. In FX, that mix has favored the dollar, with DXY up this week alongside NOK, while GBP, CHF and SEK have lagged.

For now, the market is not pricing a full-blown energy crisis. It is pricing the renewed risk that the calm of early July was temporary. If oil stabilizes, the next week Fed meeting can still remain anchored around the June inflation prints, and the dollar bid should fade. If Brent keeps pushing higher, we are back to duration and degree, with inflation risk, curve flattening and USD strength doing most of the transmission.

EUR: Rangebound ahead of ECB

EUR/USD continues to trade in a remarkably tight range, having spent the past four weeks oscillating between 1.14 and 1.15. Price action remains directionless, with Tuesday’s losses erased yesterday, the daily RSI hovering around neutral territory, and the 21-day moving average flattening out after a sustained decline.

As we’ve highlighted in recent weeks, the euro remains caught between supportive rate dynamics and deteriorating fundamentals. Higher energy prices have pushed markets to price a somewhat more aggressive ECB response relative to the Fed, helping EUR/USD hold up better than many would have expected given that European natural gas prices have returned to their March highs.

However, there are growing signs that this support is reaching its limits. Investors are already pricing around two ECB hikes by year-end, and it is difficult to see today’s ECB meeting generating a materially more hawkish repricing, regardless of the tone adopted by President Lagarde. The core issue remains that rising energy prices may support inflation and rate expectations, but they simultaneously worsen the eurozone’s growth outlook.

That leaves the euro in the familiar position we have been discussing throughout July: higher yields are helping, but for the wrong reasons.

For now, markets appear content to keep EUR/USD trapped within its established range. But absent a renewed ceasefire push between the US and Iran or a meaningful easing in energy prices, our bias remains for a gradual drift lower toward 1.1380 in the near term. Beyond that, today’s ECB meeting should determine whether the recent period of consolidation resolves into a broader downside move or extends a little longer.

GBP: GBP/NOK extends its slide

Sterling hasn’t had a great week so far. For the most part, it has felt more like profit-taking following the previous rally, with nothing meaningful to justify the pullback.

Burnham was broadly priced in. His comments about exploiting “flexibility” in the fiscal rules unsettled markets on the day, although the more persistent selloff in long-end bonds appears to be driven primarily by geopolitics. Oil prices have continued to move higher, currently near $96 a barrel and reigniting inflation fears.

Markets remain in this strangely complacent mode, however, allowing pairs like GBP/NOK to gather further bearish momentum. Higher oil prices benefit Norway as an energy exporter. It certainly helps that the country has one of the highest policy rates among the majors, adding another layer of demand from a carry perspective in a low-volatility rate environment (see USD section above for more details).

GBP/EUR has gradually moved lower through the 1.17 handle, with 1.16 now emerging as the next key support level, coinciding with the 21-day moving average. Given the downside risks facing the euro ahead of today’s ECB policy meeting, a move back to 1.16 may look premature just yet.

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Calendar: July 20-24

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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.