The war in Iran, the closure of the Strait of Hormuz and oil market conditions remain the focus of investors’ attention. The longer the armed conflict in the Middle East continues, the greater the likelihood of stagflation. Markets will view macroeconomic data through this lens.
In this regard, the acceleration of German and European inflation in March could reinforce the ECB’s ‘hawkish’ rhetoric. Christine Lagarde and Bundesbank President Joachim Nagel have expressed their readiness to raise rates to bring inflation closer to target. However, EURUSD traders are reacting more to fluctuations in the oil market than to monetary policy, viewing the escalation of the conflict as a threat to the region’s economy, which is negative for the euro.
Data on US business activity and the labour market will signal a slowdown. If this happens rapidly, the Fed will begin to consider resuming its rate-cutting cycle. This will exert downward pressure on the US dollar.
The positions of the United States and Iran remain far apart, yet financial markets remain cautiously optimistic. Signs that diplomatic channels remain open are supporting global risk appetite and helping stock indices avoid sharper declines. However, any escalation in tensions could quickly change sentiment. A broader regional conflict would represent a significant geopolitical risk for investors.
The FxPro Analyst Team