Steve Englander on US dollar, oil and the surprising market resilience

As global markets navigate a complex mix of geopolitical uncertainty and economic resilience, investors are closely watching how the ongoing West Asia tensions unfold. Despite initial fears of prolonged disruption, recent trends suggest a more measured response from financial markets, particularly in the United States.

In an interaction with ET Now, Steve Englander from Standard Chartered Bank shared his perspective on the evolving situation, noting that neither side appears eager to escalate tensions further.

“Well, look, I think both sides are clearly hesitant to reinitiate hostilities. Both are hoping that the other one is in a more difficult economic and political situation and will cave first.”

He pointed out an interesting shift in market behavior. While US equities have pulled back slightly from their highs, their correlation with oil prices has weakened significantly compared to the early weeks of the conflict. Even Israeli equities, he observed, are hovering near all-time highs.

“In some ways, you can say that the pressure on Trump may be less than the Iranians are counting on, given that the asset markets seem to be dealing with this relatively well.”

The US dollar, meanwhile, has shown signs of strengthening against major global currencies. However, Englander cautioned against attributing this solely to oil price movements or geopolitical developments.

“No, it is certainly having an impact on other regions, and again the Iranian side is probably hoping that that leads other countries to put pressure on the States to back off.”He added that the dollar’s movement is more closely tied to equity market performance than to oil dynamics.

“I would say that the dollar is weaker than it was before when oil prices hit these levels, but I do not think it is because of oil. I think that the negative correlation between the dollar and equity prices has been the strongest correlation over the last couple of weeks.”

Interestingly, the resilience of US equities may itself be contributing to a softer dollar.

“Paradoxically, the fact that the US equities are so robust is making the dollar weaker, and you are not seeing a global equities collapse.”

When it comes to market focus, Englander believes the spotlight has shifted away from geopolitical risks toward corporate performance, especially in the technology and AI sectors.

“It is possible, but setting aside the war, say the war had never happened, US earnings would still be strong. The AI productivity drive would still be strong, and probably stronger than in other countries.”

He also highlighted structural advantages within the US economy, particularly its labor market flexibility.

“It is easy to fire people, and that is unfortunate when it happens, but it is also easy to hire people. So, I think that the ability to adjust is strongest certainly within G10 and the US as compared to Europe or Japan.”

Turning to bond markets, the US 10-year yield—currently around 4.33%—has repeatedly faced resistance near the 4.4% mark. While some see this as a ceiling tied to geopolitical stress, Englander views it differently.

“Well, looking at the same thing, you can look at oil prices, you can look at inflation breakevens, you can look at Treasury yields—they have all been very strongly correlated, and that correlation is still in place.”

He expects yields to rise further over time, regardless of the conflict.

“Ultimately, I think that US yields are going to go above 4.4 even without the war. There is enough going on in terms of activity picking up, real returns picking up—the direction of travel for bond yields is higher.”

For now, while uncertainties persist, markets appear to be taking the situation in stride—balancing geopolitical risks with strong economic fundamentals and corporate performance.