By Enrique Diaz-Alvarez, Chief Financial Risk Officer of International Payment Company Ebury

The Israel -Iran war is expected to dominate currency markets after US intervention late Friday with the bombing of Iran’s main nuclear facilities. Macroeconomic data, even the US Federal Bank (Fed) meeting, passed second in the headlines, and the few more remaining dollar supporters must have been relieved that the US currency seems to keep the regime. The dollar was reinforced by all the basic coins worldwide. The coins of the emerging markets did not have a particularly bad week, while the future stock contracts opened on Sunday without major deviations from previous week levels – an indication that this move mainly concerns the dollar and that the willingness to take on.

Under normal circumstances, this week’s focus would be on PMI indicators for business activity, announced Monday throughout the day in the various economic zones and countries. However, economic data and monetary policy developments must now compete with headlines from the Middle East, especially if there are any Iranian retaliation against US interests. The reaction of oil price will be decisive. So far, it has increased significantly but in a controlled way and at levels manageable by the world’s major economies.

Sterling

The UK frustrating sequence that began two weeks ago continued. Inflation was higher than expectations, while retail sales were shrinking by 2.7% on a monthly basis, much worse than analysts expected. These developments intensify the negative climate of stagnation, after the worst loss of jobs in May coming from the era of the pandemic. The Bank of England maintained interest rates unchanged, as expected, but the existence of three disagreement in favor of immediate reduction shows that the Monetary Policy (MPC) Committee is concerned about the prospects of the economy. The pester has reacted negatively, with markets evaluating a growing chance of paying interest rates as early as the next session in August.

Euro

There have been no significant economic or political news from the eurozone capable of affecting markets. Financial data continue to “blur” from exporting companies to channel products to the US before the implementation of Trump duties in the first quarter. As a result, the euro moved exclusively on the basis of developments outside the Eurozone, mainly in the Israeli -Iran war, and was negatively affected by the ejecting of oil prices and Europe’s dependence on energy imports. The US, on the other hand, is now the next oil exporter. The picture is expected to remain the same this week, with the euro starting significantly lower and oil continuing its upward trend. The PMI announcement on Monday is the main macroeconomic event this week in the eurozone. Indicators move close to the critical limit of 50 points – a limit that separates growth from shrinkage. Economists expect a mild rise.

USD

Although the focus of the market has shifted from macroeconomic data and monetary policy, last week had developments on both fronts. The data continues to have a mixed picture with the housing market being particularly weak, while other indicators hold on to better levels. The Federal Reserve recognized this uncertainty and maintained, as it was universally expected, the interest rates unchanged, however, adopting a tone perhaps slightly more aggressive than markets. However, the recent labor market weakening is leading some policy -making officials to turn to an early interest rate reduction. In our opinion, these controversies will not be resolved before at least two more reliable macroeconomic data occur: one for employment and one for inflation.