Commodity playbook: How treasury reopening, firm dollar, and Fed signals are shaping the road ahead

Global commodity markets have been on a roller-coaster ride throughout 2025, driven by geopolitical tensions, supply-demand imbalances, and shifting monetary policies. As we approach the end of the year, three critical developments in the US economy—the reopening of the US Treasury after a record closure, a strong US dollar, and speculation about Federal Reserve rate cuts—are set to shape commodity price trends in the coming months and into 2026.

US Treasury Reopens After Record Closure: Economic Signals

The reopening of the US Treasury after an unprecedented shutdown has drawn global attention. This move comes amid a backdrop of mixed economic indicators. Recent data show moderate GDP growth, steady job creation, and inflation cooling toward the Fed’s 2% target, signalling resilience in the US economy despite fiscal disruptions. However, the reopening also means renewed issuance of government debt, which could push yields higher in the short term. Rising yields often attract foreign capital, strengthening the dollar and tightening global liquidity—factors that weigh heavily on commodity markets.

Stable US Dollar Index

The US Dollar Index (DXY), hovering near the 100 level, reflects investor confidence in US assets amid global uncertainty. This strength is driven by several factors, including higher US yields compared to other major economies, safe-haven demand amid geopolitical risks and uneven global growth, and expectations of delayed rate cuts, which keep dollar-denominated assets attractive. A stronger dollar typically exerts downward pressure on commodities priced in dollars—such as crude oil, gold, and base metals—because it makes them more expensive for holders of other currencies. This dynamic has already contributed to volatility in commodity prices this year.

Fed Rate Cut Speculation: December and Beyond

Markets are keenly watching the Federal Reserve’s next move. While inflation has eased, the Fed remains cautious, and the current consensus suggests no rate cut in December, with policymakers likely to maintain a restrictive stance until they see sustained disinflation and stable labour markets. However, gradual cuts in mid-2026 are plausible if economic growth slows further. The Fed’s strategy will likely involve data-dependent decisions that prioritise inflation and employment metrics, forward guidance to manage market expectations and avoid abrupt volatility, and liquidity adjustments to ensure financial stability during the transition. For commodities, the timing and pace of rate cuts matter significantly. Lower rates typically weaken the dollar and boost liquidity, supporting commodity demand and prices, whereas prolonged tight policy could cap rallies in energy and metals.

Geopolitical Wildcard: Russia-Ukraine Ceasefire

A complete ceasefire between Russia and Ukraine would be a game-changer for commodity markets. It could ease supply disruptions in energy and grains, stabilise prices, reduce risk premiums embedded in oil and gas markets, and boost investor confidence, encouraging capital flows into emerging markets and commodity-linked assets. However, the impact may not be uniformly bearish. While energy prices could soften, improved global stability might spur industrial activity, supporting metals and agricultural demand.The interplay of key factors such as the reopening of the US Treasury, a strong dollar, and the Federal Reserve’s policy stance points to continued volatility in commodity markets. Crude oil prices are likely to remain under pressure in the near term due to dollar strength and ample global supply, though any signs of Fed easing or geopolitical disruptions could trigger short-lived rallies. Gold, traditionally a safe-haven asset, faces headwinds from high yields and a firm dollar, keeping prices subdued for now. However, signals of rate cuts in 2026 may revive bullish sentiment. Base metals like copper and aluminium, which are closely tied to global growth trends, could see limited upside under a strong dollar and cautious Fed stance, while infrastructure spending and energy transition initiatives may provide medium-term support.

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Looking ahead to 2026, commodity markets are expected to navigate a complex and evolving landscape. In the short term, strong dollar conditions and tight monetary policy will likely keep prices range-bound. Over the medium term, gradual rate cuts and easing geopolitical tensions could revive demand across energy, metals, and agricultural sectors. These developments will create opportunities for selective gains, though volatility will remain a defining feature of the market.

(The author is Head of Commodity Research, Geojit Investments Limited)