Global FX Strategy: FX Compass: Summer of disquiet

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Global FX Strategy: FX Compass: Summer of disquiet

Global FX Strategy UBS Research

Macro overview: Summer of disquiet

The FX market remains in a low-volatility summer framework despite the continuation of

kinetic activity in the Persian Gulf, together with a big decline in energy traffic through Please refer to

the Strait of Hormuz. This is being mirrored by low S&P 500 volatility, with implied levels the narrative

below 20 still, even as the tech sector generates its own alternative source of noise. And

although front month Brent futures are up over 25% since early July, the Dec ’26

contract is up a more modest 18% and remains well within the $71-93 range that has

prevailed since mid-March.In our view, a key reason for the relative lack of movement compared to what might Marketssee low odds of recent US-

have been expected 3-4 months ago is the fact that proposals are already doing the Iran skirmishes escalating yet again

rounds for announcing an immediate 10-day ceasefire to be followed by deeper into an all-out conflict

negotiations. The market continues to harbor strong doubts that either side is willing to

go back to all-out conflict, in the US case because of the imminence of midterm

elections in November and in Iran’s case because of the economic and military damage

that could be sustained on top of already-large losses. Given there is already a track

record of the US and Iran suddenly agreeing to deals over the course of this conflict, the

established pattern points to a consensus that current actions are more about gaining

leverage ahead of more extensive negotiations and less about being part of a build-up to

a larger conflict. The fact that the Israel / Lebanon front is relatively muted is also an

encouraging sign.