Source: Forex News
This week, one of the best performers was crude oil. The price of Brent and WTI surged by 4.8% and 3.6% respectively. They are now trading at the highest level since 2014. The gain came as Donald Trump moved to fulfil his campaign promise of getting out of the Joint Comprehensive Plan of Action (JCPOA) regularly known as the Iran deal.
In a statement on Tuesday, the president announced that the US would exit and reinstate the tough sanctions they had put in place before the deal. This was opposite of what the top American allies had been pushing on.
The reasons for exiting the deal were that Iran was still in violation of the spirit of the deal by the continued funding of terrorism, the continued development of ballistic missiles, and its involvement in Syria. He also opposed the sunset clauses in the deal.
Europeans on the other hand acknowledged that Trump was right in his assessment. However, they hoped to build upon the existing deal to pressure Iran to abandon its programs.
Hours after he exited the deal, parliamentarians in Iran burned a paper American flag. In addition, a serious conflict emerged after Iran bombed Israel’s bases in Syria. Israel responded by bombing Iran’s establishments in Syria. This could lead to a heightened conflict that will be good for the oil markets.
Another major issue this week came from North Korea. As Donald Trump was making his decision on Iran, his Secretary of State, Mike Pompeo was airborne, travelling to Iran. He was going to have a conversation with Kim Jong Un on the upcoming summit between him and the United States. The meeting will happen on 12th June in Singapore, a country that is viewed as being neutral to both sides. In the trip he emphasized that the US will accept nothing other than a denuclearized Peninsula. If this deal works out, it will likely be Trump’s biggest accomplishment.
There was also significant news from the central banks. Yesterday, the New Zealand central bank left interest rates unchanged and signaled that the low rates would last for the next foreseeable future. This is because the country’s sluggish inflation rate that has been caused by sluggish growth in wages. As a result, the kiwi, which has been falling against the dollar continued the decline, before seeing a modest reversal after the disappointing US inflation data.
In the UK, the Bank of England left rates unchanged and signaled one interest rate hike this year and two more in 2019. This was a disappointment to investors, who had expected two hikes this year and two more in the coming year. However, the disappointing inflation data from the UK has removed the urgency for the officials to hike rates.
In the US, the consumer prices disappointed, leading to a decline in the dollar. The data released by Bureau of Labor Statistics (BLS) showed that monthly CPI rose by 0.2% and at an annual rate of 2.5%. The latter was in line with expectations. The core CPI rose by 0.1% against the expected 0.2%. It rose at an annualized rate of 2.1%. On a positive note, the initial jobless claims fell to the lowest level in 48 years.
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