The situation in the Middle East remains at the center of attention for investors and forex traders. At the end of last week, media reports suggested that Tehran was ready to halt the development of its nuclear program and transfer enriched uranium to third countries in exchange for access to frozen assets and security guarantees. On Friday, it also allowed partial vessel passage through the Strait of Hormuz, which generated particular optimism among market participants and strengthened assets viewed as alternatives to the dollar. However, after the United States refused to unblock Iranian ports and seized the container ship Touska, the Islamic Republic canceled a new round of diplomatic consultations that had been scheduled for today in Islamabad. The day before, US President Donald Trump again warned that if Iran does not accept US peace terms, the country’s transport and energy infrastructure would be destroyed. Experts suggest that the probability of renewed hostilities and even a blockade of the Bab el-Mandeb Strait is rising, which would lead to another increase in hydrocarbon prices. Meanwhile, US Federal Reserve Board member Christopher Waller stated that a rapid end to the US-Iran conflict would allow policymakers to move toward interest rate cuts later this year, but otherwise high inflation could become entrenched across a broad range of goods and services, while real economic activity and employment would begin to decline.
Eurozone
The euro is strengthening against the yen and the US dollar, while showing mixed dynamics against the pound.
March data from Germany were published today: the producer price index rose from –0.5% to 2.5% month-on-month, beating forecasts of 1.4%, and from –3.3% to –0.2% year-on-year. As a result, inflationary pressure is increasing both in the German economy, the largest in the EU, and across the broader European economy due to rising hydrocarbon prices, and may continue to intensify further against the backdrop of the escalating Middle East conflict. Meanwhile, European Central Bank (ECB) President Christine Lagarde stated that the US-Iran confrontation has significantly destabilized the economic outlook because it has a major impact on short-term price growth. As a result, the regulator’s further monetary policy actions remain uncertain and will depend on incoming data.
United Kingdom
The pound is strengthening against the yen and the US dollar, while showing mixed dynamics against the euro.
April’s house price index from research company Rightmove Group Ltd. came in weak: the indicator remained at 0.8% month-on-month and fell from –0.2% to –0.9% year-on-year. Experts note a slowdown in activity in the construction sector, as consumers are postponing purchases out of concern over a deterioration in their financial situation amid the economic slowdown caused by the Middle East conflict, as well as due to the possibility of interest rate hikes by the Bank of England. Under the influence of the same factors, the S&P Global consumer sentiment index fell from 44.1 points to 42.3 points.
Japan
The yen is weakening against the euro and the pound, while showing mixed dynamics against the US dollar.
According to the results of the Bank of Japan’s quarterly household survey, the share of families expecting consumer prices to rise over the next year declined from 86.0% to 83.7%, while over the longer-term five-year horizon it fell from 83.0% to 82.6%. On average, in the latter case, respondents expect inflation to accelerate by 10.3%, the highest level since records began in 2006.
Australia
The Australian dollar is strengthening against the euro, the pound, the yen, and the US dollar.
The positive dynamics are being supported by expectations of tighter monetary policy from the Reserve Bank of Australia (RBA) in May, the probability of which is currently estimated by the market at 68.0% amid a stable labor market and elevated inflation. In March, unemployment remained at 4.3%, total employment rose by 17.9K against a forecast of 19.1K, while full-time employment increased by 52.5K after previously declining by 27.7K. At the same time, the weighted consumer price index stands at 3.7%, while the trimmed measure is at 3.3%, both above the target range of 2.0–3.0%.
Oil
Oil prices are rising, supported by a new escalation in the Middle East conflict: over the weekend, the United States detained the Iranian container ship Touska, which had allegedly attempted to violate the US blockade on maritime shipping. In response, the Islamic Revolutionary Guard Corps (IRGC) blocked the Strait of Hormuz, while media reports emerged that official Tehran had refused to participate in the next round of peace talks. Observers calculated that more than 20 tankers managed to pass through the waterway on Saturday, the highest number since March 1, while only three vessels passed on Monday. Experts note that supplies of crude oil remain constrained by both US and Iranian restrictions, longer shipping times, and rising insurance costs, meaning that the hydrocarbon deficit on the market could intensify further in the near term.
