Iran claims that it does not intend to engage in dialogue at gunpoint, but, apparently, it will negotiate. Oil is retreating, allowing the EURUSD to close the gap formed at the opening of the week. Meanwhile, a new drama is preparing to play out in Washington with Congress considering Kevin Warsh’s candidacy for the post of Fed chairman.
Geopolitics is a temporary factor for the markets. As soon as conflicts end, financial assets tend to return to their original positions. The paradox of the war in the Middle East is that it has not ended, but the assets have already returned.
Stock indexes and EURUSD are trading higher than at the end of February. At the same time, oil is significantly more expensive. Although there are significant shifts in the black gold market. Contracts with immediate delivery were recently priced at $140 per barrel, now at $99. And it’s not just about Donald Trump’s intention to put an end to the confrontation with Iran. Most likely, there is a weakness in demand.
The US dollar is having a hard time without Brent support. Not only are rumors of negotiations reducing the demand for safe havens. So also the positions of competitors in the face of the eurozone sitting on the energy needle are starting to look not so bad. And then there’s Christine Lagarde with her hawkish comments. According to the Frenchwoman, the ECB will be forced to raise rates more than otherwise. If governments overdo it with fiscal incentives to mitigate the impact of gas prices.
Monetary restriction is unlikely to be expected in April, because the consequences of the war in the Middle East are more significant than the armed conflict in Ukraine. The ECB needs time to assess everything. However, the acceleration of inflation is obvious, and the focus on raising rates will support the EURUSD.
Meanwhile, Scott Bessent said he understands why the Fed is not cutting rates. Such a phrase could be a lifeline for Kevin Warsh, the nominee for the post of chairman of the Federal Reserve. Tom will have to spin around in front of Congress like he’s in a frying pan. To prove that he supports the independence of the central bank and at the same time please Donald Trump.
When geopolitics is a thing of the past, the Fed may return to cutting rates. This factor is “bearish” for the US dollar. At the same time, prolonging the conflict in the Middle East may keep the greenback afloat. Is there nothing more permanent than temporary?
