A deal to end the war has been almost reached, with Iran agreeing to suspend its nuclear program indefinitely and declaring the Strait of Hormuz fully open. Israel and Lebanon are negotiating. Is everything all right, beautiful Marchioness? As if not so! It was on Friday, and most of it was in Donald Trump’s head. Over the weekend, the United States seized an Iranian tanker, and Tehran is threatening to abandon dialogue with the Americans on a falling flag.
Events are developing at a kaleidoscopic speed, and the vectors are constantly changing. From de-escalation to escalation and back again. Is it any wonder that the USD index lost all its gains due to the war in the Middle East, and the EURUSD opened a new week with a gap down. The second in a row. The first one was closed thanks to the conciliatory rhetoric of Donald Trump. This time, instead of a carrot, the US president picked up a stick. He’s threatening to bomb every power plant and bridge in Iran if it doesn’t make a deal.
Investors are easy to understand. Over the past few decades, geopolitical conflicts have rocked the markets, but then everything returned to the starting point. There is a template that can be played out. Therefore, signs of an end to the war in the Middle East triggered FOMO or fear of missing out. US stock indexes reached record highs, bond yields around the world went down, and the USD index collapsed. His March gains were seen as a routine correction. The long-term weakness of the US dollar due to political instability, pressure on the Fed, loss of credibility and monetary expansion has not been canceled.
The problem is that the markets are used to trusting Donald Trump, and he often gives out wishful thinking. Iran calls the Americans’ demands unrealistic and threatens to disrupt the negotiations. He did this a week ago, but this time the expiration date of the two-week ceasefire is looming on the horizon.
If the US stock indexes are afraid of an escalation of the conflict in the Middle East, or the second round of negotiations between Washington and Tehran fails, like the first, the reaction of dollar pairs on Forex will be radically different from a week ago. There is no guarantee that investors will believe in Donald Trump’s illusions again. At the same time, the owner of the White House, locked in a corner, will have no choice but to make his threats come true – to bomb every bridge and power plant.
