By Molly Schwartz, cross-asset strategist at Rabobank

A river in Egypt

Scott Bessent took to CNBC’s Squawk Box yesterday to opine on the situation with Iran. Bessent echoed Trump’s comments that any released Iranian assets are to remain under US Treasury oversight and are restricted to use for food and medicine. However, money is fungible, and any released cash that is used to help civilians may mean more cash from other places that can be used to support the IRGC’s interests

Bessent’s comments also called attention to another philosophical outlook on the war and the Administration’s initially stated— though seemingly not truly intended—goal of regime change. This is where the waters gets murky, and where we can climb into our Felucca and begin our journey along a river in Egypt, drifting, perhaps, into a bit of strategic “denial” about what regime change actually means. If, hypothetically of course, Operation Epic Fury succeeded in asserting regime change in Iran, where does the US go from here? If the new Ayatollah says he is willing to table plans of further enriching uranium and wants to align itself with US interests, should the US just keep firing missiles? Do you keep Iranian assets under lock and key, even if the regime has shown you that it has changed?

Bessent said himself, “we didn’t have a regime change, but we have changed the regime.” If that is the genuine perspective of the Trump Administration, then the deal may not be as bad for the US as many perceive it to be. As our Global Strategist, Michael Every, has noted on multiple occasions, show of strength means everything in the arena of Middle Eastern geopolitics. There is a possibility that the current hardliners in the IRGC aren’t actually so hardline anymore, but are only presenting as such. Note that this is not a new base case for our outlook by any means (you can read more about our Hormuz outlook here), but food for thought.

If the regime truly has changed, this also could have big implications for USD dominance. Bessent noted that a born-again Venezuela is shifting back towards USD invoicing, and that post-deal Iran is likely to do so as well.

Brent crude oil fell below $75/bbl for the first time since the war in Iran began, sending US Treasury markets into a tailspin. US 2-year yields dropped almost 6bp to 4.21, while the 10-year sunk almost 10bp—the largest one-day downward move since October 2025. With “peace in the Middle East,” the case for hikes is losing water by the day, with the market now pricing in 27bp worth of hikes by October, and only 40bp worth of hikes at the peak—a significant downgrade from Monday, when two full hikes had been priced in by the April 2027 FOMC decision.

Such a dramatic move in rates would normally suggest a weaker dollar, but USD was actually the best-performing G10 currency on a one-day view and the best month-to-date. The DXY index continued its climb from last week’s FOMC meeting to 101.6—the highest level since May 2025. Meanwhile, EUR/USD broke below crucial support at 1.14, fueling additional EUR selling, with the pair trading at 1.1356 at the time of writing. While the following appears to be more of an instance of correlation rather than causation, it is also important to note that yesterday’s move coincided with comments from Bessent—perhaps another slow turn of the Felucca—that USD can remain strong even when interest rates are being cut.

While USD is soaring, JPY is plummeting. USD/JPY spent the day yesterday approaching the July 3, 2024 high of 162, with the 14D RSI at 71.83 suggesting that USD/JPY is overbought. According to Bloomberg, Bessent and Japanese Finance Minister Katayama spoke over the phone, with Katayama telling reporters that “she and Bessent agreed to take ‘bold’ steps on currencies if needed,” and said the nations are increasingly “aligned” on foreign-exchange policy.

The Bank of Canada released its Summary of Deliberations from the June 10 decision, written on papyrus. Recent Canadian economic data suggest that the Canadian economy has slipped into a technical recession, with two consecutive quarters of negative quarterly growth. The Governing Council piled into a felucca of their own, racing up de Nile, justifying that higher-frequency data suggest a “resumption of growth in the second quarter,” and that while the Canadian economy is weak, it is “not clearly in a recession.”