Dollar Anomaly: Oil Rises Sharply, Dollar Falls
The last few days, especially today’s session, have shaken the usual interdependencies in financial markets. Brent oil continues strong gains, and the September contract is already trading above 97 USD per barrel, meaning we are rapidly approaching the three‑digit threshold. Rising oil prices are a result of the expanding scope of the conflict in the Middle East. Now the Strait of Hormuz is closed, and there may also be significant disruption to transport through the Bab el‑Mandeb Strait, through which Saudi tankers head toward Asia.
Under normal market conditions, a jump in energy prices combined with geopolitical risk would have driven demand for the dollar, both as a safe haven and due to increased expectations of higher interest rates. Today, however, we observed a clear weakness in the dollar.
Yesterday, gold broke out of a multi‑week downtrend. This may be related to doubts about the status of the U.S. currency. Secondly, investors are selling stocks after yesterday’s tech earnings, despite very good reports, due to concerns that excessive investment will not deliver the expected growth in the future.
Nevertheless, if the geopolitical situation were to intensify further, the dollar would likely become the sole alternative for the market again, and investors are currently looking with hope toward the future. Will the same be true for today’s communication from the ECB?
ECB Decision: July Pause, but What About September?
The main event of the day remains the European Central Bank’s meeting. The baseline scenario assumes that interest rates will remain unchanged at today’s meeting. A clear slowdown in inflation in the euro area in June (the main indicator fell to 2.8% y/y and the core to 2.4% y/y) gave the dovish side of the Governing Council a solid argument to halt the cycle.
On the other hand, the recent sharp rise in oil and TTF gas prices above 60 EUR/MWh could bring a surprise: not necessarily from interest rates, but likely from hawkish rhetoric. Considering the ECB head Christine Lagarde’s statements at the Sintra forum and the hawkish remarks of council members (e.g., Isabel Schnabel), the market prices today’s pause as only a brief stop before the final rate hike in September.
Nevertheless, Lagarde indicated that past guidelines were a mistake, so it cannot be ruled out that the ECB will decide to step ahead and raise rates today, not in a few weeks.
This would be a significant change in the ECB’s current policy approach, potentially strengthening the euro. However, it should be remembered that the probability of such a move is still small, as the ECB is not responsible for a single economy but essentially for all of Europe.
Summary and Current Exchange Rates
EURUSD quotes are gaining this morning and are around 1.1423. Nevertheless, the situation remains dynamic and the dollar is slowly recovering earlier losses. If Christine Lagarde maintains her hawkish stance and suggests a September move, the euro could retain its advantage over the dollar.
In the longer term, however, the dollar’s escape from safe‑haven status may prove temporary. Persistently high energy commodity prices hit Europe’s trade balance much harder than the self‑sufficient United States, which in the medium term could again promote the U.S. currency.
The zloty remains very stable, and we pay 3.7923 PLN for the dollar, 4.3315 PLN for the euro, 5.0711 PLN for the pound, and 4.6548 PLN for the franc.
