US dollar extends gains amid geopolitical concerns

Today’s headlines

What’s happening: The US dollar traded higher this morning, extending gains from the previous session.

What happened: Concerns of further escalation in the ongoing conflict between the US and Iran lent support to the greenback.

The US dollar also received a boost from prospects of higher inflation keeping the Federal Reserve from cutting interest rates.

Why it matters: Concerns grew after Iran attacked neighbouring countries where there are US bases, including the UAE, Qatar, Bahrain, Kuwait, Saudi Arabia, Jordan and Syria, after the death of Supreme Leader Ali Khamenei.

The US has warned of a significant increase in attacks on Iran within the next 24 hours, targeting Tehran’s missile production facilities and naval assets.

Meanwhile, Israel attacked Lebanon following recent strikes by Lebanon’s Shia Muslim group Hezbollah. Qatar said on Monday that it had halted its liquefied natural gas production, pushing precautionary closures of oil ⁠and gas production across the Middle East.

Markets grew concerned that the ongoing conflict would raise energy costs, triggering higher inflation. Prospects of higher inflation is expected to delay the Federal Reserve’s plans to cut its benchmark interest rate, which provided a boost to the US dollar.

Data released by the US on Monday showed that the ISM manufacturing PMI rose to 52.4 in February from 52.6 in the previous month. However, the latest reading came in above market estimates of 51.8 and represented a second straight month of growth in the manufacturing sector.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, rose around 0.2% to 98.53 this morning, after jumping almost 1% in the previous session.

What to watch: Investors will continue monitoring the ongoing tensions in Iran, which are expected to significantly impact the US dollar ahead.

Data on ADP Employment Change (1715 UAE Time), S&P Global Composite PMI (1845 UAE Time) and S&P Global services PMI (1845 UAE Time) will be released on Wednesday. Private businesses in the US, which added 22,000 jobs in January, are expected to add 50,000 jobs in February. Analysts expect the S&P Global composite PMI to decline to 52.3 in February from 53.0 in January, while the services PMI is expected to ease to 52.3 in February from 52.7 in the previous month.

The markets today

European stocks in focus today ahead of inflation data

Context: Equity markets in Europe closed lower on Monday, after testing record highs last week.

Details: European stocks began the week under pressure on concerns around the growing conflict in the Middle East.

US military forces killed Iran’s Supreme Leader Ali Khamenei along with several high-ranking officials, resulting in Iran conducting a series of attacks on neighbouring regions that have US bases.

Prospects of attacks on the energy infrastructure of various nations triggered concerns of an increase in oil prices leading to higher inflation.

European benchmark natural gas prices jumped as much as 50% while oil prices also rose sharply on Monday. This exerted pressure on banking stocks, including shares of BBVA and Santander.

Consumer discretionary and auto producer stocks also came under pressure on prospects of higher inflation and interest rates. Shares of LVMH, Inditex, Hermes BMW and Volkswagen declined around 4% each.

Although the shares of defence aviation and energy producers rose, the moves were unable to lift the overall stock indices.

The STOXX Europe 600 Index lost 1.61% to close at 623.63 on Monday. London’s FTSE 100 declined 1.20% to 10,780.11, while Germany’s DAX 40 fell 2.56% and France’s CAC 40 was down 2.17%.

What to watch: Investors await the release of data on the Eurozone’s inflation rate (1400 UAE Time) today. Analysts expect the region’s annual inflation to remain at 1.7% in February, unchanged from the previous month. The Consumer Price Index, which fell 0.6% in January, is expected to rise by 0.4% in February.

Other Markets: US trading indices closed mixed on Monday, with the S&P 500 and Nasdaq 100 up by 0.04% and 0.13%, respectively, and the Dow Jones index down by 0.15%.

The news shaping the markets

Russian officials stressed on a halt to the US-led peace talks with Ukraine unless Kyiv cedes territory to reach an agreement. The news sent the USD/RUB pair lower in forex trading this morning.

Taiwan’s consumer confidence index declined to 66.58 in February from a nine-month high of 67.16 in the previous month, lending support to the USD/TWD forex pair.

Australia’s private house approvals rose 1.1% to 9,753 units in January, compared to a 1.2% gain in the previous month. The latest reading signalling the third consecutive month of growth sent the AUD/USD pair higher in forex trading this morning.

UK’s shop price inflation climbed 1.1% year-over-year in February, easing from 1.5% in the previous month, which lent support to the GBP/USD forex pair.

South Korea’s S&P Global manufacturing PMI slipped to 51.1 in February from 51.2 in January, sending the USD/KRW forex pair higher in forex trading this morning.

What else to watch today

Spain’s unemployment change (1200 UAE Time), Brazil’s IPC-Fipe inflation (1200 UAE Time) and GDP growth rate (1600 UAE Time), Italy’s inflation rate (1400 UAE Time) as well as US LMI Logistics Managers Index (1500 UAE Time), Redbook index (1755 UAE Time) and RCM/TIPP economic optimism index (1910 UAE Time).