Insights 
VT 
The USD’s recent rebound appears to be slowing and may need hawkish adjustments to sustain its momentum. A forthcoming US CPI release is expected to deliver a 0.3% month-on-month core figure, which may not provide the necessary boost. However, the market anticipates 50 basis points of easing by year’s end, so any unexpected inflationary data could support the USD.
Foreign exchange volatility is relatively calm, creating favourable conditions for carry trades. Despite this, the yen’s funding attractiveness might slow recovery in spot prices, as markets show less concern over Japan’s domestic situation.
Geopolitical Developments
Recent geopolitical developments involve Trump denying reports of US plans to supply Ukraine with long-range missiles, while the US imposed new sanctions on Russian oil producers. This news has caused a 4% rally in oil prices, but the increase only offsets October’s losses. To offer real support to the USD, Brent would need to rise to $70. The effectiveness of recent sanctions on reducing Russian oil exports remains uncertain, mainly affecting exports to India. Although past occurrences indicated limited impact, it is premature to determine if these sanctions will permanently raise oil prices.
The US Dollar’s recent strength appears to be fading, and we believe it needs a surprise to move higher. All eyes are on tomorrow’s US CPI inflation data, with markets expecting a 0.3% core monthly increase. Given that futures markets, as seen on the CME FedWatch Tool, are currently pricing in two full 25-basis-point rate cuts by year-end, any reading above 0.3% could force a rapid repricing and send the dollar upwards.
This market environment is defined by very low currency volatility, which continues to make carry trades attractive. The Deutsche Bank FX Volatility Index is sitting near 6.5, well below its 12-month average of over 8.0, making it cheaper to fund trades by borrowing Japanese Yen. Traders should consider using low-cost options to protect these carry positions from any sudden yen strength, such as a surprise intervention from the Bank of Japan.
New sanctions on Russian oil producers have pushed Brent crude up about 4%, unwinding the losses from earlier in October and bringing the price to around $68 per barrel. However, we are skeptical this rally has legs without tangible evidence of supply disruptions. This view is based on our experience from January 2025, when similar sanctions were announced but Russian oil flows to Asia were ultimately not significantly impacted.
Market Implications
The key question is whether these new sanctions will be different, and so far, the answer appears to be no. Recent tanker tracking data shows Russian seaborne crude exports have only dipped by around 150,000 barrels per day, which is a minor change. For traders, this could mean the recent jump in oil price volatility is an opportunity to sell call options, betting that Brent will struggle to break and hold above the $70 per barrel level.
