Nature abhors a vacuum. While Fed Chair Kevin Warsh maintains diplomatic silence, markets are shifting their attention to other key decision-makers. Christopher Waller is now in the spotlight. If in the second half of 2025 it was his cautious hints that foreshadowed the rate-cutting cycle, now the authoritative FOMC member is openly discussing the need for monetary policy tightening. Combined with escalation in the Middle East, this rhetoric is creating strong downward pressure on EUR/USD.
The geopolitical deadlock is compounded by internal contradictions within Iran. Diplomatic sources report that Tehran is formally ready for dialogue with Washington, but the real levers of power lie with the Islamic Revolutionary Guard Corps (IRGC). This structure categorically rejects any negotiations with the United States, recognizing only the language of force. Judging by everything, the White House has finally recognized this reality and adjusted its strategy.
The administration’s reaction was swift: Donald Trump announced that the United States is assuming the role of security guarantor in the Strait of Hormuz while imposing a 20 percent transit fee. The oil market reacted instantly: Brent posted its fastest rally since the pandemic shock, and the threat of returning uncontrollable inflation has once again become the dominant narrative in financial markets.
Christopher Waller intensified the pressure, stating that the issue of raising rates should be considered as early as the July meeting, especially if June CPI data confirms rising core inflation. In his view, regardless of the metric chosen, price pressures persist, and there is no reason to delay a decision. Such “hawkish” rhetoric was immediately reflected in derivatives: the probability of monetary tightening at the upcoming FOMC meeting surged from 18% to 42% in just a few weeks.
Geopolitical escalation, soaring oil prices, and tightening Fed rhetoric are creating a perfect macroeconomic storm. Under such conditions, competing currencies have virtually no chance of withstanding the US dollar’s advance.
What could theoretically stop the greenback’s strengthening? Analysts at Apollo Global Management point to the risk of large-scale foreign capital outflow in the event of a correction in AI-related companies. The logic is this: riding the AI boom, non-residents placed colossal funds in US equities, and due to high rates, a significant portion of these positions was unhedged. Consequently, capital rotation and exit from tech giants could trigger capital repatriation and weaken the dollar index.
In my view, this scenario looks far-fetched. Foreign investors don’t necessarily need to leave the US stock market; they could simply employ the same sector rotation that American players are already actively using. In current macroeconomic realities, the fundamental drivers of the dollar’s rally remain precisely the geopolitical risk premium and the growing probability of Fed rate hikes, not a hypothetical outflow from the technology sector.
