De-escalation specter
Over the weekend the USA suspended airstrikes on the enemy. This is good news for the world, but the lack of explanation for the de-escalation decision or future moves raises further questions about the conflict. Moreover, media reports indicate that the Islamic Republic has also frozen retaliatory attacks. Additionally, it is negotiating with Oman regarding the Strait of Hormuz. The above means that markets have received another TACO and war de-escalation.
Trump’s withdrawal from recent threats against the opponent caused a sharp discount in energy commodities. Noticeable declines are seen, among others, in crude oil. The American version on Monday afternoon hovered around 83 USD, and the London BRENT was quoted at 85 USD. In both cases this is a seven-dollar discount compared to Friday’s session close.
Calm forex
De-escalation reports had a smaller impact on the currency market. Reducing risk usually involves capital outflow from safe havens, such as the US dollar or Swiss franc on forex. At the same time, currencies of developing economies gain. And indeed, in Monday’s morning we observed an increase in the main world currency pair, but the scale of the move was moderate.
The EUR/USD rate was slightly above 1.14 USD (Friday ended at 1.137 USD). The euro’s strengthening on the discussed chart was therefore not as spectacular as the dollar‑level moves in oil. Moreover, during today’s session the Swiss franc remains strong.
This is not a comfortable environment for the zloty, which cannot take advantage of the de‑escalation narrative and is losing from the morning. The EUR/PLN rate at 13:00 returns to 4.32 PLN, USD/PLN rises above 3.79 PLN, and CHF/PLN again surpasses 4.65 PLN.
The dollar has power
A moderate outflow of capital from the dollar indicates investors positioning for macroeconomic releases that we will learn about in the second part of the week.
On Wednesday evening the July FOMC decision on interest rates will be announced. Forecasts suggest keeping the cost of money in the 3.5‑3.75% range, but year‑end expectations raise the possibility of a hike of even 50 basis points. This fact keeps the offshore currency strong and effectively dampens its today’s losses.
Besides the decision itself, the Fed chair’s remarks during the press conference will be equally important. Any hawkish mention could lead to a strengthening of the “green” and a lasting break of the 1.14 USD support on the popular “edku”.
The next day we will learn about the report on American spending (PCE inflation, core PCE) or US GDP. In addition to US data, important information from other economies will be published on Thursday and Friday.
These include the Bank of England and Bank of Japan decisions on the cost of money, as well as preliminary July inflation data from Poland and euro‑zone countries.
