Everything was coming to this. A truce without a clear plan for a peaceful settlement of the conflict sooner or later ends with the resumption of hostilities. Iran’s attack on American ships and oil infrastructure facilities in the UAE in response to Donald Trump’s Freedom Project is another confirmation of this. Brent for December delivery soared to its highest levels since the start of the war in the Middle East, and its dynamics strongly resemble what happened four years ago. So much the worse for the EURUSD.
As the cease-fire dragged on, the United States was faced with a choice between a long war, which it did not want to wage, and a bad deal. Rumors that Donald Trump was weighing a plan for new bombing of Iran looked like nothing more than unfounded threats. By resuming hostilities, Tehran has shown that it is not afraid and is not going to give up. Now the White House is forced to either respond with fire and sword, or swallow the pill and declare its commitment to a diplomatic solution to the conflict.
The first option is fraught with the growth of Brent to record highs. The current situation is different from the events of 2022. She’s worse. Russia has found workarounds and managed to sell oil in the face of Western sanctions. It is impossible for the Persian Gulf countries to do the same. Sooner or later, global reserves of black gold will be depleted, and prices will skyrocket. The eurozone, which is sitting on the energy needle, will be dealt a serious blow. European Union Commissioner for Economic Affairs Valdis Dombrovskis admitted that the bloc was in stagflationary shock, no matter how Christine Lagarde urged not to scare people with such terms.
Does this mean that the euro will repeat its fate of four years ago and fall below parity with the US dollar? So far, such a scenario looks unlikely due to the gas market conditions. Prices for natural gas in Europe are several times lower than in 2022.
However, anything is possible in this world. Never say never. Bundesbank President Joachim Nagel has joined the growing number of Governing Council officials advocating an increase in the ECB deposit rate in June, and John Williams of the New York Federal Reserve argues that the federal funds rate should fall at some point. It would seem that the divergence in monetary policy is obvious, the EURUSD is bound to grow.
But no! Investors are more concerned about geopolitics and the demand for safe haven assets, and in such conditions it is difficult to find competitors for the US dollar.
