The dollar slips despite continued US-Iran hostilities

Renewed hostilities between the US and Iran have given markets another theme to contend with over the past fortnight, seeing transits via the Strait of Hormuz fall to a trickle once again. Yet despite this, oil prices remain some way off the highs achieved earlier in the year, with the dollar also failing to find the kind of pick-up that it did back in March. In part, we think markets are now more comfortable with the risks stemming from disrupted energy supply. Coupled to a pullback in AI-exposed equities, and our expectation for a slowing US economy over coming months, a modest slide lower for the buck looks fair to us.

These conditions should provide a backdrop for the week ahead, though the calendar points to attention being focused on events outside the US. An ECB rate decision tops the docket, while CPI releases from Canada, the UK, and Japan are also due before PMIs round the week. On the political front, the UK is also set to anoint a new PM, with Andy Burnham expected to take charge from Monday. All told then, this mix points to the non-dollar side of many FX pairs helping to keep traders on their toes in the coming week, provided Middle East fears remain contained.

You can read the Week Ahead in full here:

Authors:

Nick Rees, Head of Macro Research

Barry van der Laan, Senior FX Market Strategist

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