The president of the United States Trump had pointed out, and now it happened. The US government has joined Israel’s attacks against Iran and, according to reports, has destroyed important nuclear facilities. The dollar would probably be seen after a shock in oil prices, which is now feared more and more, says Thu Lan Nguyen, head of currency research and raw materials of Commerzbank.
The USD could stop climbing in the near future
“However, this is less due to its safe refuge status and more to the fact that US exchange terms improve when the price of oil rises. Why? Because USA is now one of the most important oil suppliers in the world. Or to say it in a simple way: the US economy can afford more imports due to the same amount of exports, which become more valuable oil.
“The Fed would respond to the inflationary consequences of an increase in the price of oil with a sufficiently restrictive monetary policy. Strictly speaking, an improvement in the terms of exchange leads to a real appreciation of the exchange rate, and this can happen in two ways: either through a nominal appreciation of the exchange rate or through greater inflation. Both lead to US products to become more expensive in comparison foreign products.
“In my assumption that the dollar would be appreciated, therefore, I had assumed that the Fed would maintain inflation under control. Anyone who has followed the activity of the US president in his preferred social media channel on Friday will now suspect that my assumption was perhaps too optimistic and that the dollar could not benefit as much as it was thought.”
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
