USD: Geopolitical risk opens room for brief dollar rebound – ING

Source Fxstreet

The dollar is stronger across the board this morning after Israel attacked Iran's nuclear facilities. The main transmission channel from this specific geopolitical risk and FX is the price of oil, which has rallied around 8% since the Israeli strike. In other conditions, the DXY rally would likely be much larger than the roughly 0.75% rebound from the overnight lows we have seen so far, because the dollar would also benefit from the negative shock in equities and bonds. But USD’s traditional correlations have disappeared of late, and it’s likely that the 1.5% drop in S&P 500 futures is doing more to cap gains, ING's FX analyst Francesco Pesole notes.

USD’s traditional correlations have disappeared

"What matters most for FX at this stage is the depth and length of the Middle East escalation's impact on oil prices. The key difference from previous Israel-Iran standoffs is that nuclear facilities have now been targeted, and while oil production does not seem to be affected just yet, markets have to add in a bigger risk premium given the crucial role of Iran in global oil supply. The next key risk is whether further escalations lead to disruptions in the Strait of Hormuz, which can seriously impact flows from the Persian Gulf, where most of OPEC’s spare capacity incidentally sits."

"While it’s hard to speculate on the situation at the moment, Israel has announced more strikes will follow and Iran's retaliation has already started. The risks now point more definitively towards a prolonged period of tension, in contrast to recent episodes. And we think this could continue to take some pressure off the dollar. While the US may well intervene with oil reserves to curb excessive price spikes, the new risk premium added to crude means inflationary risks are rising at a time when the bulk of the price impact from tariffs in the US is set to materialise."

"We had felt the USD negative reaction to the soft CPI print was exaggerated, and new geopolitical tensions give the Fed another argument to stay cautious, arguing for that CPI move to be scaled back. Today, the US calendar includes the University of Michigan surveys, which have generally painted a grimmer picture of inflation and sentiment than other indicators."

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
OpenAI Introduces Lowest-Cost ChatGPT Subscription in India with UPI Payment OptionOn Tuesday, OpenAI introduced ChatGPT Go, its most affordable AI subscription tier, targeting the price-sensitive Indian market. Nick Turley, OpenAI’s Vice President and Head of ChatGPT, announced the launch via an X post, highlighting that users can pay through India’s Unified Payments Interface (UPI).
Author  Mitrade
Aug 19, Tue
On Tuesday, OpenAI introduced ChatGPT Go, its most affordable AI subscription tier, targeting the price-sensitive Indian market. Nick Turley, OpenAI’s Vice President and Head of ChatGPT, announced the launch via an X post, highlighting that users can pay through India’s Unified Payments Interface (UPI).
placeholder
Japanese Stocks Surge, Yen Weakens Amid PM Ishiba’s Resignation and Fiscal UncertaintyJapanese stocks rose and the yen weakened as Prime Minister Ishiba’s resignation heightened concerns over the country’s fiscal policy and interest rate outlook.
Author  Mitrade
Yesterday 01: 33
Japanese stocks rose and the yen weakened as Prime Minister Ishiba’s resignation heightened concerns over the country’s fiscal policy and interest rate outlook.
placeholder
Oil Prices Rise Following OPEC+ Decision to Slow Output Increases Starting in OctoberOil prices edged higher early Monday, recovering some ground lost last week, after OPEC+ agreed to moderate its pace of output increases starting in October amid concerns over weakening global demand.
Author  Mitrade
Yesterday 01: 48
Oil prices edged higher early Monday, recovering some ground lost last week, after OPEC+ agreed to moderate its pace of output increases starting in October amid concerns over weakening global demand.
placeholder
Dollar steadies before U.S. jobs data; euro pressured by French turmoilThe U.S. dollar edged higher Tuesday, stabilizing after a slide to seven-week lows as traders looked ahead to key labor and inflation data expected to lock in a Federal Reserve rate cut next week.
Author  Mitrade
6 hours ago
The U.S. dollar edged higher Tuesday, stabilizing after a slide to seven-week lows as traders looked ahead to key labor and inflation data expected to lock in a Federal Reserve rate cut next week.
placeholder
European stocks mixed; French political crisis, U.S. inflation in focusEuropean equities traded narrowly on Tuesday as investors weighed political turmoil in France against anticipation of key U.S. inflation data later this week.
Author  Mitrade
6 hours ago
European equities traded narrowly on Tuesday as investors weighed political turmoil in France against anticipation of key U.S. inflation data later this week.
Related Instrument
goTop
quote