Iran hostilities 'finally' deliver stronger Dollar

Matthew Ryan, CFA Ebury

We are finally beginning to see the renewed hostilities in Iran reflected in a broadly stronger dollar, which one could argue is somewhat overdue.

Brent crude oil prices have surged above $90 a barrel amid a widening in US strikes on Iran and Trump’s threat of further attacks on the country’s nuclear sites. Iran itself has claimed to be back in a full-scale war, while Trump has played down the prospect of peace talks, despite mediators pushing for a fresh ceasefire.

So far, markets have been viewing the recent flare up in tensions through the lens of its impact on monetary policy, though risk aversion appears to be becoming an increasingly more dominant driver of price action.

The economic calendar is relatively light in the US in the next couple of days, so we expect the dollar to take its cue from the latest developments in the Iran war.

The preliminary business activity PMIs will, however, be released on Friday, with investors to be watching closely for any signs that the war is leading to another worsening in business confidence.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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