USD: Safe-haven support as conflict risk builds – MUFG

FXStreet Insights Team FXStreet

MUFG’s Derek Halpenny notes that the US Dollar’s initial weakness after President Trump extended the pause in attacks on Iran’s energy assets has been short-lived, with DXY only slightly lower. He argues that if risk-off intensifies, especially with Brent crude Oil in a higher range and equities falling, the Dollar should strengthen further in the short term despite a poor longer-term backdrop.

Dollar seen benefiting from risk-off

"The price of Brent crude oil dropped sharply after the announcement yesterday by President Trump that he was extending the pause in attacks on Iran’s energy assets until 8pm EST on 6th April but the drop has by now fully retraced underlining a level of scepticism amongst investors over the prospect of a successful outcome. The US dollar weakness in response to the announcement has also been fleeting with the DXY now around 0.1% weaker from when the announcement was made."

"If we are about to enter a more pronounced period of risk-off with larger equity market falls we would expect the US dollar to extend stronger. In January we saw doubts emerge over the dollar’s safe-haven status and dollar debasement fears saw gold and silver surge. President Trump described the selling of the US dollar in January as “great”."

"We certainly continue to believe the fundamental backdrop for the dollar remains poor and we continue to expect renewed dollar depreciation beyond this period of conflict in the Middle East. But we do not expect that to be on show over the short-term and fully expect the dollar to benefit most if the equity markets take a bigger hit."

"In a more severe scenario of Brent crude oil trading in a range of USD 120-160pbl and equity markets taking a bigger hit, the DXY could advance closer to the 105-level (+7%-8% from pre-conflict level)."

"In a scenario of more intense risk aversion we doubt terms of trade and yield dynamics will play much role in FX direction."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

GBP/USD loses momentum, flirts with 1.3200

GBP/USD is struggling to maintain its positive bias on Thursday, retreating toward the 1.3200 region in response to the pick in the buying interest around the Greenback. That said, Cable remains under scrutiny as cautious market sentiment keeps investors focused on the US-Iran conflict and political effervescence in the UK.

EUR/USD trims gains, challenges 1.1400

EUR/USD now gives away part of its earlier advance, receding toward the 1.1400 contention zone on Thursday. Meanwhile, the pair’s recovery comes amid extra losses in the US Dollar, at the time when while investors continue to monitor developments in the Middle East and sentiment surrounding global technology stocks.

Gold remains bid and close to $4,100

Gold accelerates its recovery and approaches the key $4,000 mark per troy ounce at the end of the week, adding to Thursday’s advance. However, expectations for a hawkish Fed remain steady and keep the yellow metal’s potential upside contained.

Crypto Today: Bitcoin at $60,000, Ethereum at $1,500, and XRP at $1 face a make-or-break test

Bitcoin (BTC), Ethereum (ETH), and Ripple (XRP) are trading in the red on Friday after three consecutive days of losses, testing their respective make-or-break support levels.

Week ahead – NFP report to challenge Dollar strength and the hawkish Fed

Dollar strength dominates markets, as the hawkish Fed overshadows geopolitics and lower oil prices. NFP week could drive September Fed hike expectations and boost market volatility. The euro lacks fresh bullish catalysts, all eyes on the preliminary inflation report and the ECB Forum.

Regime change: Inside Kevin Warsh's first move to make the Fed unreadable on purpose

The rate did not move. That was the least interesting thing about Kevin Warsh's first meeting in charge of the Fed. The FOMC held its benchmark at 3.50%-3.75% for the fourth straight meeting, exactly as priced, and then the new chair used his first press conference to dismantle the machinery the market has leaned on for a decade.