Be afraid of your desires. Donald Trump’s desire to bring Iran to its knees turned out to be so strong that the US president completely forgot about the consequences. About rising oil prices and American inflation, about rising Treasury yields and the Fed’s intention to extend the pause in the cycle of monetary expansion, about the strengthening of the dollar, finally! All this completely contradicts the previously stated goals. However, you can do anything to prevent the creation of nuclear weapons.
The conflict in the Middle East forced yesterday’s “bears” on the US dollar to abandon their plans. JP Morgan admitted defeat and stated that the USD index will strengthen in the short term. Allianz Global Investors is openly calling for greenback purchases. At the same time, the worst daily decline in the EURUSD since January is facilitated by the curtailment of speculative shorts on the “American”. In February, they reached a 5-year high.
Instead of “sell America,” a completely different mood prevails in the markets. The dollar is outperforming competitors in several areas at once. As the currency of a net exporter of energy products. As a safe haven asset. Thanks to the rally in Treasury bond yields, which increases the attractiveness of assets issued in the United States. Finally, due to the growing risks of accelerating inflation and the Fed’s prolonged hold on federal funds rates at a high level.
Indeed, greenback received the greatest preferences in relation to the currencies of those countries that buy oil and gas in the form of the Swedish krona, the British pound and the euro. On the contrary, the success of the “American” against the Norwegian krone and the Canadian dollar turned out to be limited.
Europe appears to be the main victim of the conflict in the Middle East. Qatar, the LNG supplier to the region, has reduced production, which has caused natural gas prices to soar by 39%. For comparison, in the USA they grew by only 3.5%. It created a sense of deja vu. Just as in 2022, against the background of the outbreak of the armed conflict in Ukraine, an energy crisis may come to the eurozone. This will slow down the economy and accelerate inflation at the same time.
Four years ago, they moved from Europe to the United States, laying the foundation for trading American exceptionalism. The current situation has a lot in common with those events, so the collapse of the EURUSD looks natural. The only questions are, how long will the conflict in the Middle East last? And how will it affect oil supplies?
