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Dollar Strength Grows as Middle East Tensions Escalate

Gold prices have hit a two-month low as air strikes were traded between The U.S & Iran in the early hours of this morning, creating further doubt that a peace deal was close which has now left markets on edge over the possible continued inflationary impact of this war.

Iran launched strikes against a U.S base in Kuwait as retaliation for previous attacks on a Southern Iran site. Comments from U.S officials stating the ceasefire is still in place and these attacks were purely defensive have done nothing to calm markets as Oil Prices jumped 4% after the attacks, whilst the Dollar also hit a near two-month high.

Moving away from geopolitics, today also brings the release of U.S Personal Consumption Expenditure for April. This release is the Federal Reserve’s preferred inflation measure and will therefore contribute to expectations surrounding interest rate movements. Increasing concerns over the inflationary impact has seen increased bets that The Federal Reserve will either leave rates unchanged, or possibly even hike rates in the latter part of the year. Forecasts for today’s release suggest PCE will have increased marginally by 0.1% on the yearly figure, any higher release will support the notion of keeping rates higher for longer and therefore we could expect to see more Dollar strength.

Sticking with The U.S, we also have Personal Income and Personal Spending from April which paints a slightly darker picture as Income looks to have dropped ever so slightly, whilst spending from consumers is expected to have dropped by nearly 0.5%. The backdrop off this is simple, it provides The Federal Reserve with a possible headache. If inflation remains sticky, or climbs further, but spending and income is down then it becomes a hugely difficult call to decide what the appropriate next step is when it comes to Interest Rate movements.

Aside from this, if Personal Consumption Expenditure proves stubborn, we would expect to see Dollar strength.

GBP/EUR 1.1527 GBP/USD 1.3390 GBP/AED 4.9194
GBP/AUD 1.8815 GBP/CHF 1.0560 GBP/CAD 1.8561
GBP/NZD 2.2758 EUR/USD 1.1600 GBP/ZAR 21.9828

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