USA Ultimatum
Yesterday's day passed under the dictation of threats issued by the US president towards Iran. Their form was something that had not happened at this stage before, and let us hope it will not happen. Markets, however, are slowly realizing that the current administration treats social media posts quite loosely.
For Iran the condition was the opening of the Strait of Hormuz, and the USA in return must stop attacks. Theoretically investors did not know what the effect of this ultimatum would be.
Theoretically, because looking at the markets, for some reason huge preparations suddenly began to calm the conflict in the region.
Oil, which started the day at $110 per barrel – and for a moment even reaching $112 – ended the day at $104.
This refers to the Brent grade quoted in London, because it is the basis for pricing most of the world's crude. American WTI oil also fell, but remains more expensive than Brent.
Iran Responded
At night the markets received information that the ultimatum had been accepted. If no incidents occur, we have a two‑week period of some de‑escalation of the conflict. We must remember that it is suspended, not resolved. The effects did not take long to appear.
Oil, which already fell sharply yesterday, fell even lower. While the markets closed at the mentioned level of $104 per barrel on Tuesday, today they opened around $95.
At the time of writing, they are even lower, at $93. Gold and cryptocurrencies are also rising, showing that investors are open to higher risk. In the background, voices slowly emerge that it is more the USA that agreed to Iran's terms than vice versa.
We will probably never know how it really was. For markets it matters that the Strait of Hormuz is navigable, and looking at ship traffic, the first ones are just approaching. We must also remember that insurance is still key, because without it most vessels will not move.
How do currencies react?
As expected, the de‑escalation turned out to be unfavorable for the dollar's valuation. After the ceasefire, the EUR/USD rate moved towards levels of 1.17. These are levels not seen on the market for over a month.
The last time we saw such a weak American currency was in the early days of this conflict. Like with oil, this move began yesterday, awaiting a decision.
The EUR/PLN rate, which yesterday morning was around 4.27-4.28 PLN, today fell to 4.25-4.26 PLN.
The biggest change is, of course, seen in the dollar, which yesterday was at 3.70 PLN, and today is at 3.64 PLN.
During this conflict it had been a safe haven for those uncertain about the situation's development.
Now, with partial de‑escalation, markets are returning closer to pre‑conflict levels.
Interestingly, investors also expect that this will lead to faster interest rate cuts in the USA.
Today’s macroeconomic calendar lacks important readings.
Maciej Przygórzewski – Chief analyst at InternetowyKantor.pl
