A resolution of the conflict could restore Middle East oil flows disrupted by the war
International News via Reuters:
The euro rose for a fourth straight session on Thursday, supported by lower energy prices amid hopes that the risk of escalation in the Iran conflict could ease after Republicans lost control of Congress in the midterm elections.
A resolution of the conflict could restore Middle East oil flows disrupted by the war. However, uncertainty remained elevated with Citi saying concerns that the White House could escalate tensions with Iran persisted after the midterm vote.
Democrats swept to majorities in the Senate and House of Representatives, spurring gains in US Treasuries and global equities, though doubts remained about whether the new Congress would be as accommodating to the AI sector.
The euro was up 0.16% at $1.1268, after reaching $1.1273 on Wednesday, its highest level since October 6.
“On balance, we see political developments overnight as supportive of a continued bottoming out in the euro/dollar: lower energy and global policy risk premium but higher AI implementation risks should on balance weaken the dollar,” said George Saravelos, global head of forex strategy at Deutsche Bank.
While typically a fall in share prices boosts the safe-haven dollar, Saravelos has argued that an unprecedented US reliance on foreign equity flows has flipped the correlation, and a fall in tech stocks would now push the greenback down.
Analysts said that the euro could nonetheless face renewed pressure as investors temper expectations for further European Central Bank monetary tightening while concerns linger over France’s fiscal trajectory and ability to curb budget deficits.
Hundreds of thousands of protesters are expected to march through French cities and public workers to strike on Thursday.
Rising public debt and the rapid expansion of non-bank finance could curb the ECB’s ability to set the appropriate monetary policy, ECB board member Isabel Schnabel said on Thursday.
The dollar index, which measures the greenback against a basket of currencies, fell 0.10% to 101.38, after hitting 101.21 in the Asian session, the lowest since September 30.
Despite the political shift in the US, expectations for the Federal Reserve’s interest rate path remained largely intact. Markets are pricing in an 80.7% chance of a rate increase of at least 25 basis points from the Fed at its December meeting, according to CME FedWatch, up from 77.4% in the prior session.
Sterling strengthened 0.05% to $1.3478, poised for its seventh straight daily rise, ahead of the Bank of England’s policy announcement on Thursday.
The yen gained after minutes from the Bank of Japan’s September meeting, when policymakers raised rates to a 31-year high of 1.25%, reinforced bets for further interest rate hikes.
The BOJ minutes showed some board members signalling a chance of faster-paced increases. Markets now widely expect the BOJ’s next hike to come in December. The yen rose 0.14% to 158.18 per dollar.
In cryptocurrencies, bitcoin BTC=> gained 0.33% to $80,403 and ether rose 0.28% to $2,421.52.
Reporting by Stefano Rebaudo and Rocky Swift; Editing by Shri Navaratnam, Thomas Derpinghaus, Peter Graff
