The US economy is less sensitive to rising energy prices than the European economy, and expectations of rate hikes by the Fed have increased. Yet, despite these supportive factors, the EUR/USD remains remarkably stable. In this FX update, we examine the reasons behind this resilience and explain why we nevertheless expect the EUR/USD to weaken further.

The tightness in the market for oil products (diesel, petrol) is greater than the prices of Brent and WTI would suggest. This also means that the inflationary risks associated with a closure of the Strait of Hormuz are greater, and this, in turn, will play a major role in central banks’ interest rate policy. In this report, we explain why this is the case and what it means for key interest rates, exchange rates and equity prices. 

Rising interest rates and a stronger dollar could push gold lower in the coming months. Yet we remain firmly bullish over the longer term and view any decline towards $3,500 as a compelling buying opportunity.