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The Middle East is a powder keg, but the dollar is flat? Analysis of the reasons behind
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Hello everyone, today XM Forex will bring you "[XM Forex]: The Middle East is a powder keg, but the US dollar is flat? Analysis of the reasons behind it." Hope this helps you! The original content is as follows:
The two-week ceasefire agreement reached by the United States and Iran on Tuesday encountered serious challenges the day after it came into effect.
Iran's Deputy Foreign Minister Saeed Khatibzadeh made it clear that Israel's air strikes against Lebanon on Wednesday constituted a "serious violation" of the ceasefire agreement, and that Lebanon should have been included in the scope of application of the agreement - a claim jointly denied by the United States and Israel.
This sudden military operation has caused the death of at least 203 people in Lebanon. Israel insists that the target of the attack was Hezbollah's xmmarkets.cnmand center and military facilities.
Hezbollah’s counterattack intensifies conflicts: the prospects for the implementation of the ceasefire are in doubt
Faced with external inquiries about “whether Iran will restrain Hezbollah,” Khatibzad said without hesitation that Hezbollah, as the “Lebanese Freedom Movement”, has always been supported by Iran, and that the organization has “strictly abided by” the ceasefire agreement.
Paradoxically, however, Hezbollah responded on Thursday that its nightly attacks on Israel were a counterattack against "ceasefire violations" and threatened to continue its actions until the "Israeli-US aggression" is xmmarkets.cnpletely terminated.
This statement has cast a shadow on the prospects for the implementation of the ceasefire between the United States and Iran, and the confrontation between the allies of both sides is still escalating.
White House spokesman Hassett, director of the National Economic Council, simultaneously stated that the dialogue between Iran and the United States is of positive significance and the two sides are negotiating a major cooperation agreement;
Stalemate in the Strait of Hormuz: Navigation disputes add to the xmmarkets.cnplexity of the situation
The navigation dispute in the Strait of Hormuz further xmmarkets.cnplicates the situation.
As a strategic waterway carrying about one-fifth of the world’s oil and liquefied natural gas transportation, the strait was supposed to resume normal traffic during the ceasefire, but IranLang's official media claimed that the strait remained closed due to Israel's continued attacks on Hezbollah.
The White House publicly refuted this statement, saying that the "strait closure" was false news and that the number of passing ships had "increased."
Khatibzadeh emphasized that Iran will abide by international law, but if the United States withdraws its "aggression", Iran is willing to cooperate with Oman and the international xmmarkets.cnmunity to formulate a passage agreement to ensure the safety of the strait and not be "abused by warships." This statement was interpreted by the market as Iran retaining actual control over the strait.
Hassett added that if the Strait of Hormuz is opened, the oil market will quickly return to normal; currently, oil reserves in Asia are increasingly depleted, and U.S. supply is less affected by xmmarkets.cnparison. The U.S. has negotiated with its allies to ensure a stable supply of oil. At the same time, the reconciliation bill is striving to be xmmarkets.cnpleted by June, and a second bill will be studied in the fall.
Limited economic data reference: Inflation stickiness coexists with employment deadlock?
Although the U.S. PCE inflation data reissued in February was in line with expectations, the core indicators are still sticky (core PCE 0.4% month-on-month, 3.0% year-on-year). However, the reference significance of this reissued data is limited in a non-wartime context.
The PCE of the service industry, which only excludes energy and housing, cooled to 0.2% month-on-month, becoming one of the few signs of easing. Market interest rate cut expectations are still constrained by inflation stickiness and geographical premiums, and the focus turns to the March CPI report.
At the same time, the number of people filing for unemployment benefits rose slightly to 219,000 in the week ending April 4. Although it is at a historical low and there has been no wave of layoffs triggered by the oil price shock, the labor market has fallen into a deadlock of low hiring and low firing. xmmarkets.cnpanies have frozen new jobs due to policy uncertainty, and young people may be unemployed. The minutes of the Federal Reserve's March meeting showed that some policymakers are inclined to raise interest rates to fight inflation, and the employment data has not yet changed the policy wait-and-see tone.
Abnormal signals under geopolitical conflicts: The US dollar did not rise but fell after the Israeli air strikes
It is worth noting that in the context of the escalation of geo-risks triggered by the Israeli air strikes, the traditional safe-haven currency US dollar did not rise as expected. Instead, it showed a downward trend under pressure, hitting a new low in the past month.
Behind this abnormal trend is the superposition of multiple market logics.
Core reason one: The ceasefire framework has not been broken, and risk appetite has been repaired
From the perspective of foreign exchange trading, the core reason for the US dollar’s “invalidity” this time is the repair of risk appetite brought about by the ceasefire agreement—despite Israel’s attack, the market is still focused on the fact that the core framework of the two-week ceasefire between the United States and Iran has not been xmmarkets.cnpletely broken, and funds are more inclined to chase risk assets rather than holding US dollars for safety.
This phenomenon of "geographic conflicts not being converted into safe-haven buying" highlights that the current market's core judgment on the situation in the Middle East has shifted to "ceasefire resilience", and the US dollar has therefore xmmarkets.cne under pressure in traditional safe-haven scenarios.
Core reason two: The plunge in oil prices has eased inflation, and interest rate cut expectations have risen
White House National Economic Council Director Hassett clearly advocated that U.S. interest rates should be lower, and also revealed that TrumpFormer Federal Reserve Governor Warsh has been nominated as the next Federal Reserve Chairman, and his Senate hearing will be held next week. If the nomination is approved, Warsh is expected to take office in May;
Current Federal Reserve Chairman Powell said that he has no intention of leaving before the xmmarkets.cnpletion of relevant investigations by the Department of Justice. His term as a Federal Reserve Board member will last until January 2028, and the reduction of the Federal Reserve's balance sheet must be gradual.
Technically, the U.S. dollar index fell below the key bull-bear dividing line of 100 and the key support integer mark of 99. The trend shows that the U.S. dollar may return to a downward trend.
The above content is all about "[XM Foreign Exchange]: The Middle East is a powder keg, but the US dollar is flat? Analysis of the reasons behind it". It is carefully xmmarkets.cnpiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your trading! Thanks for the support!
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