The U.S. Dollar is continuing its upward run against all peers, reaching its highest value since mid-January with markets wondering about escalation in the Middle East as conflict spreads.
According to the Saudia Arabian Ministry of Defense, a couple of drones attacked the American embassy in Riyadh. Energy markets are on edge as QatarEnergy announced that they will cease the production of downstream products, such as methanol and aluminum, which affects European markets drastically. In China, they are concerned about tanker traffic being stuck in the Strait of Hormuz and leadership is asking all sides to allow passage. Oil prices keep rising with WTI Crude now above $76.0/barrel, Brent now above $85.0$/barrel.
Domestically, this puts monetary policy in a dilemma with worries abut inflation exacerbating while there are signs of stagnant growth. Kevin Warsh, who is yet to be formally nominated to take over as Fed Chairman once Powell leaves, will have a tough time satisfying the White House’s calls for lowering borrowing costs. Chances of reduction of 25 basis points by the Fed’s June 17th meeting stand at just 28.0%. Turmoil will dictate market moves, but for now it is clear the Buck is playing a safe-haven role that had diminished temporarily.
What to Watch This Week…
- Euro-zone Q4 GDP, Friday
- US Nonfarm Payrolls, Friday 8:30AM
- Monex USA Online is always open
EUR ⇓
The Euro has dropped to its weakest value against the Dollar since January 15th as worries grow with the Iranian situation getting more parties involved. Israel, Kuwait, Dubai, and even the Saudia Arabian capital has now been on alert as their territories are breached. European leadership has criticized what is going on as they mostly feel watching on the sidelines without a ton of clarity on a plan for long-term stability. Gross Domestic Product readings at the end of the week may save the currency from sinking further if they impress, but for now Iran headlines are dominating markets that see very little to be enthusiastic about.
MXN ⇓
The Mexican Peso is also riding the havoc and headed lower, hitting its weakest point since mid-January much like all other Majors. As far as Emerging-Market Currencies are concerned, they are down to their lowest since mid-last month, falling by almost 1.0% per the MSCI EM Currency Index. Energy materials will rise in price, but the Buck’s rally is likely to remain until something changes in the war-driven picture. Reports are mostly saying Iranian leadership has no plans to submit or give any concessions, making markets think this will go on for a long while, but we never know.
