FX.co ★ 22.04.2024: USD’s dual status testing its strength. Outlook for S&P 500, EUR/USD, and Brent crude

The recent absence of definitive statements from Iran and Israel regarding further military strikes suggests a temporary reprieve in Middle Eastern crisis escalation, at least for now.

However, the markets remain unable to fully detach from the ongoing geopolitical anxieties, causing asset movements to be somewhat distorted. Market reactions are increasingly influenced by the latest news, including statements from central banks of the world’s leading economies.

In the past week, Wall Street's performance, as reflected by the S&P 500 index, has been less than optimistic. This sentiment is influenced not only by ongoing global tensions and the hawkish stance of the US Federal Reserve but also by the quarterly earnings reports of American corporations.

Following a 10% drop in Nvidia’s stock on Friday, there is concern that tech giants like Microsoft and Alphabet might also underperform. The S&P 500 started Monday in the red, trading in a range of 4,953 to 5,019.

Simultaneously, commodity markets saw crude oil prices decline, while both gold and the dollar retreated from their peak values.

Gold's intraday trading range on Monday was set between $2,346 and $2,404 per troy ounce.

The US dollar continues to maintain a tight grip on the Japanese yen, hovering close to the 155 mark — a threshold traders consider crucial for potential intervention by Japanese authorities.

Following the G20 financial leaders' summit in Washington, Bank of Japan Governor Kazuo Ueda hinted that the central bank might consider an interest rate hike in the near future. Meanwhile, the yen has depreciated by 9% since the beginning of the year, with recent trades ranging between 154.4 and 154.8.

Discussions around monetary policy are also active in the US where Federal Reserve officials are weighing in on interest rate strategies. Austan Goolsbee, President of the Chicago Federal Reserve, has expressed caution against lowering interest rates, citing a halt in this year's price decline as a key reason for maintaining current rates.

With US interest rates expected to remain relatively high compared to those in Europe, the US is poised to become an even more attractive destination for capital investments. This interest rate differential is likely to enhance the appeal of the dollar, potentially increasing capital inflows and bolstering demand for the US currency in the global markets.

As uncertainties linger regarding the rate-cutting cycle, particularly in the US, investors find it compelling to take long positions on the dollar due to its dual status as both a high-yield and a safe-haven currency. Currently, it's nearly impossible to find a reason to bet against the US currency.

With the Federal Reserve unlikely to rush into policy easing amidst positive economic data and stable inflation, the dollar is poised for further strengthening. During Monday's trading, the dollar index fluctuated between 105.9 and 106.3 points, remaining close to its recent peak of 106.52.

The strengthening of the dollar is also supported by monetary policies in the Eurozone and the UK. It is anticipated that rate cuts will begin by mid-year. For instance, Bank of England Governor Andrew Bailey and his deputy Dave Ramsden have confirmed that inflation in the UK is slowing, aligning with forecasts.