#fiat-instability

#fiat-instability

High energy prices are kryptonite for the housing market. Affordability, especially for those first-time home buyers, is now an elusive dream until oil prices come down and interest rates come down.

"Oil prices are higher again this morning, but Treasury yields are lower as the risks to economic growth begin to take precedence over the risks to inflation," Oxford Economics said in a note on Monday.

The pricing of 10-year inflation-protected Treasuries implies inflation of 2.34% over the next decade, up only slightly from 2.25% pre-war. In other words, only about a fifth of the rise in the 10-year yield this month is accounted for by investors anticipating higher inflation.

Escalating geopolitical risk continued to dominate global markets' concerns, with safe-haven demand keeping the dollar index anchored near a multi-week high.

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Markets remain fragile amid persistent geopolitical tensions in the Middle East, which have pushed oil prices higher and revived concerns about inflation in Europe. While interest rates are expected to remain unchanged, attention could turn to the ECB's forward guidance and assessment of energy-driven price risks.

Sterling fell by 0.5% against the dollar, dropping below $1.33, as the US currency strengthened due to a flight to safety. The dollar index increased by 0.3%.

"The historical evidence reveals a striking pattern: government bonds have repeatedly generated substantial real losses during these extreme episodes. They have even underperformed equities and real estates which are traditionally regarded as risky assets."

The dollar stabilised to a certain extent today after retreating in the prior session, but could remain relatively volatile as markets react to geopolitical developments in the Middle East. Treasury yields were firmer following a pullback on Monday as well.

With 2-year gilt yields hitting December highs due to a 40 per cent surge in UK gas prices and oil nearing $80, the Bank of England faces a significant inflationary shock. High-street banks are no longer competing on price but are instead protecting margins against rising swap rates.

The expectations of a decrease in tensions triggered a pullback in oil prices, which in turn softened immediate concerns about inflation pressures. However, the broader geopolitical backdrop remains fragile, and any renewed escalation could quickly push oil prices, the dollar, and Treasury yields higher again.

Crude oil breaking above the USD 100 threshold has revived inflation concerns, pushing US Treasury yields higher across the curve. However, Friday's labour market report revealed a significant deterioration in employment conditions, with the economy losing 92,000 jobs in February, its largest contraction in several months.

The U.S. dollar's value has fallen 8% over the past year, as the price of gold has skyrocketed, said the WSJ Dollar Index. Some think it is a good thing. President Donald Trump said recently a weaker dollar is great. The idea is a weaker currency boosts exports and employment while a strong currency can throttle an economy. While the idea of a weaker dollar has had supporters over the decades, economists often argue gains can be eaten up by domestic inflation and deflation.

The dollar has continued to sink, and top investors in Northern Europe are reportedly re-evaluating their exposure to U.S. assets, while Danish pension funds have already dumped Treasury bonds. Part of that is because of concerns over U.S. debt, but Trump's Greenland crisis and his continued unpredictability have also fueled calls for Europe to weaponize its capital. In fact, European investors own $8 trillion in U.S. stocks and bonds, with $3.6 trillion of that in Treasury debt alone.

Ray Dalio never misses an opportunity to cut to the chase. On Wednesday at Davos, speaking to Kamal Ahmed, Fortune's Executive Editorial Director for the UK and Europe, he had a blunt assessment of the landscape leaders and CEOs are facing at the moment. "What always scares me is the lack of realism," among leaders, he said as he reeled off the historic economic, climate, and political threats the world is grappling with. "Will law prevail? Everyone is having to deal with that question."

The fall of the dollar, which has lost a fifth of its value against the euro since 2025, is the most tangible reflection of how money, through a series of shocks, has adapted to a worldthat of Donald Trumpwhere the old rules no longer apply. Conversely, the Republican's decision to nominate Kevin Warsh to chair the Fed is yet another sign that the White House regards Wall Street with respect.

Gold has been on a tear as the dollar is under pressure, raising questions about global confidence and market risk. The US economy and markets are unmatched in size. The dollar is the king of currencies, and US treasuries are often considered a safe-haven asset. But, investors appear to be reassessing that. This has weighed down on the greenback and cooled the stock markets.

On Polymarket, the online platform that lets people wager on almost anything, an anonymous trader somewhere in the world placed a series of suspiciously well-timed bets. Using a fresh account created last month, the individual made just a few bets in the days leading up to the raid, according to The Wall Street Journal -all on the possibility of imminent regime change in Venezuela-and appeared to come away with more than $400,000.