Movements in the major currency exchange rates have been limited recently. However, we think this will change, with the outlook for public finances playing a key role. The situation in the United Kingdom clearly illustrates why…

Two forces are dominating the bond markets: Geopolitical tensions surrounding the Strait of Hormuz and unabated enthusiasm for AI. Both point toward higher long-term interest rates. However, for short-term interest rates, we expect a scenario quite different from what the markets are currently pricing in.

The markets are discounting the expectation that AI will continue to drive economic growth and profits, and that the Strait of Hormuz will reopen soon, causing energy prices to fall and enabling central banks to limit the number of rate hikes. As a result, US equities have entered a blow-off phase. It is difficult to predict how long this phase will last, but for a number of reasons there is a very high chance that the markets are now becoming over-enthusiastic.