Societe Generale’s Kit Juckes notes the US Dollar (USD) is currently soft as markets react to hopes of a Gulf peace deal and the end of a United States (US) Department of Justice (DoJ) probe into Federal Reserve (Fed) Chair Powell. He argues that if the conflict ends quickly the Dollar should underperform, but a prolonged disruption to Oil flows would favor US and other energy exporters over importers.

Conflict scenarios drive Dollar outlook

“If the conflict were to end quickly on the back of these new Iranian proposals, the dollar would likely underperform the other major currencies.”

“But otherwise, the longer oil flows are disrupted, the more the energy importing nations’ economies will suffer, outright and even more so, relative to the energy exporting nations.”

“At the moment, the dollar bears are just about winning, but the market seems complacent.”

“Another dollar-negative factor this morning is the end of the DoJ probe into Fed Chair Powell’s handling of the Fed building refurbishment.”

“That should clear the way for Kevin Warsh to be confirmed as the next Fed Chair, possibly heralding a new level of Treasury/Fed co-operation and (President Trump hopes) lower interest rates.”

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