Dollar Cools Despite Gas and Oil Prices Surge

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Traders lean on positives from Trump's response to attacks on Middle East energy infrastructure.

Brent crude oil jumped in value to $115 a barrel and European wholesale gas jumped 35% at Thursday's open after an escalation in military attacks on Middle Eastern energy infrastructure.

An Iranian ballistic missile broke through air defence and hit Qatar's Ras Laffan LNG facilities, avenging Israel's midweek attack on Iran's South Pars gas field, the world's biggest, which it shares with Qatar.

The dollar jumped as it followed energy prices higher on Wednesday when it became clear a major escalation in the war was underway, but there's been no follow-through by the USD on Thursday, despite energy prices extending gains.

EUR/USD is actually up slightly on the day as it trades at 1.1475, GBP/USD is higher at 1.3271 and GBP/EUR at 1.1573.

"The euro and pound, which have taken a bit of hammering during the Iran conflict, are recouping some of yesterday’s losses versus the dollar today," says Raffi Boyadjian, Lead Market Analyst at Trading Point.

Traders Lean on Positives of Trump's Response

Analysts say the damage to the gas fields will result in a significant constraint on global supplies, even when the war ends, which will be particularly painful for gas-importing nations in Asia.

Increased competition for remaining supplies will bid up prices in Europe, which would typically weigh on the euro.

One explanation for the becalmed currency market reaction is that U.S. President Donald Trump was forthright in his response to Israel's attacks, calling for de-escalation.

"Israel, out of anger for what has taken place in the Middle East, has violently lashed out at a major facility known as South Pars Gas Field in Iran," Trump said on Truth Social. "The United States knew nothing about this particular attack."

He also threatened Iran with a massive U.S. attack on South Pars if it continued to target gas and oil infrastructure.

"The United States of America, with or without the help or consent of Israel, will massively blow up the entirety of the South Pars Gas Field at an amount of strength and power that Iran has never seen or witnessed before," said Trump.

That the U.S. is actively looking to de-escalate shows a strong willingness to find an exit route.

Markets have been looking for Trump to take an offramp ever since it became clear the U.S. underestimated Iran's ability to stangle exports from the region.

Energy markets are also betraying some optimism: the futures market continues to price for cheaper energy within a few months.

"It's very easy to see how things can get far worse. However, there are arguably ways things can also improve as a result," says Michael Every, Senior Global Strategist at Rabobank.

That evergreen optimism probably explains why currency and equity markets have yet to show any real sense of panic.

Given Trump's response to recent events, it's hard to see the Iran war premium build much further and as soon as we see some signs of genuine de-escalation, we'd imagine a notable unwind of March's moves ensues.

That means GBP/USD and EUR/USD are higher, with GBP/EUR lower.