- The ECB’s willingness to raise rates helped the EURUSD pair.
- The fall in oil prices put pressure on the US dollar.
At what oil price will the US economy fall into recession? According to the Wall Street Journal’s consensus estimate, the figure is $138 per barrel over a 14-week period. For now, such a scenario seems unlikely, though Saudi Arabia is considering Brent rising to $180, and Iran is raising the bar to $200. On Polymarket, betters give a 35% chance of the Middle East conflict ending by the end of April and a 69% chance by the end of May. This means longer pressure for the economy and potentially more supply shocks.
Often, when the US faces a recession, it will drag the rest of the world down with it. In such cases, the so-called ‘dollar smile’ theory works when the greenback strengthens when things in the US are very bad or when things are good. A scenario in which the eurozone faces a downturn before the US is far more likely. And the ECB’s latest determination to fight inflation increases the chances of a recession.
For now, however, the EURUSD is trending up after a Bloomberg insider report suggested the European Central Bank may tighten monetary policy. The Bank of England and other regulators are expected to do the same. They are ready to outpace the Fed, which is rare. Such a background widens bond yield spreads against US bonds, forcing the dollar to retreat.
Statements from key players suggesting the Middle East conflict could be resolved sooner than expected have given Crude Oil some room to pull back. Pledges to avoid further strikes on energy infrastructure, combined with potential sanctions relief that could release up to 140 million barrels into the market, have offered investors a degree of reassurance. Markets have responded to this as a form of policy support, with both the administration and treasury signalling a willingness to step in and stabilise conditions.
However, confidence remains fragile. Many market participants are sceptical that the Strait of Hormuz will reopen in the near term, with shipping activity unlikely to resume until the situation fully de-escalates. Ongoing regional instability and no clear resolution in sight continue to support a bullish outlook for both Oil and the US Dollar.
Gold is faring the worst. The precious metal has seen its biggest weekly sell-off in more than 40 years amid central banks’ intentions to tighten monetary policy. According to Barclays, the Fed may start discussing rate hikes as early as April.
The FxPro Analyst Team