If only Donald Trump’s profanity could end the conflict in the Middle East. In fact, it means despair. The terms of the US president’s previous ultimatum to Iran are expiring, and a new date appears instead – until Tuesday. And so it goes over and over again. Betting markets have stopped believing the Republican’s words and are reducing the chances of an early end to the war. The US dollar continues to rally, and it is still difficult to understand what can stop it.
Everything takes time. If the month of armed conflict in the Middle East and the associated increase in oil prices have so far had a minor impact on the economy due to abundant supplies in February, then it will only get worse. Moreover, everything is different for everyone. The war brings the theme of American exceptionalism back to the markets.
Citi lowered its forecast for the eurozone economy by 0.4 percentage points, and for the US economy by only 0.1 percentage points. The main reason is the fact that net imports of oil and liquefied natural gas in Europe range from 1% to 2% of GDP, while net exports from the United States range from 0.2%.
A strong economy is a strong currency. No one has canceled this principle of fundamental analysis. Americans will suffer less from conflict in the Middle East than Europeans. This fact is one of the reasons for the EURUSD’s decline.
The ECB’s attempt to slow down the fall of the euro with the help of “hawkish” rhetoric only temporarily slowed down the advance of the “bears”. In fact, the markets are realizing that the desire of central banks not to repeat the mistake of 2022 may turn into a new and much bigger mistake.
Four years ago, the ECB was too slow to raise rates, which allowed inflation to accelerate to double digits. However, in 2022, the reason for its growth was the post-pandemic demand. Now we are talking about a limited offer. If central banks know how to deal with excessive demand, they don’t have the tools to deal with supply shortages. It is not for nothing that they say that it is impossible to print oil.
The best solution is to wait. And statistics on the US labor market give the Fed the opportunity to sit back. Employment in the non-agricultural sector grew at the fastest pace in more than a year in March. Unemployment dropped from 4.4% to 4.3%. The labor market is stabilizing, which reinforces the fashion for American exceptionalism and contributes to the strengthening of the dollar. Next is the EURUSD trading plan.
