August will go down as one of the least successful months for the dollar in recent years. Why? Because during that month the dollar weakened by around 4 cents, moving from USD/EUR 1.08 to USD/EUR 1.12. The dollar's movement reflected what was happening in the US economy. Several disappointing US statistics (led by weak US labour market numbers) raised fears of the US economy falling into recession. Finally, even the head of the US Federal Reserve, J. Powell, under pressure from the events of August, sent out the message that it was time for the Federal Reserve to cut its key interest rate. Investors took this to mean that interest rates in the US would go down during September. By the end of the year, the market is betting on a significant drop in the interest rate attractiveness of the US currency by a full percentage point.
The last few hours have not been so bad from the dollar's point of view. The dollar is lucky that investors are not just looking at it through the lens of the state of the US economy or the US central bank's interest rate settings. The dollar's dominance as the world's reserve currency has also led to it being a sought-after safe haven. So what currency do investors think of when geopolitical tensions are rising in the world? The US dollar, of course. It has been very slowly retracting recent losses due to geopolitics and has strengthened slightly to the level of USD 1.116/EUR. The Middle East region is pushing geopolitical risks higher and higher. Lebanon's Hezbollah has fired hundreds of rockets against Israel in recent days. On the other hand, Israeli fighter jets have attacked targets in Lebanon.
I'd put my hand on my head that this isn't over. The fear of an open conflict between Iran and Israel continues. Iran is an important world oil producer. To make matters worse, Libya has decided to stop the production and export of oil from its territory, which is linked to the conflict in Tripoli. Libya is responsible for oil production of more than 1 million barrels a day. Even its oil would be noticeably lacking on the markets. What is the result? A rise in the price of Brent crude. A week ago, it was trading at $75 a barrel. Today it is over $81 a barrel. The rise in oil is certainly not negligible, but on the other hand it is not dramatic either.
Why? Firstly, investors have sort of adapted to the shaky situation in the Middle East in recent months. And secondly, the Middle East region and the OPEC cartel as a whole is no longer the dominant supplier of oil to world markets. The oil market has been increasingly supplied by American producers in recent years. And what does this mean for Czech drivers? Fuel prices have been on a downward trend during this summer's holidays. This was very pleasant. But the decline in fuel prices at the pump is coming to an end due to developments in the oil market. On the other hand, petrol and diesel prices will be held back by the exchange rate. While the dollar has visibly weakened over the past month, the koruna has, on the contrary, been slowly strengthening. Dramatic fuel price increases are therefore not imminent for the time being. Still, I will personally go to fill up a full tank sooner rather than later.
The koruna stagnated again today just above the 25 koruna per euro level. It is clear that it will need a more substantial boost to strengthen below this level. However, this is not coming from the stock markets. While the German stock index DAX is up by 0.5 %, the Czech stock index PX is down by 0.2 %. The Bratislava stock exchange is doing better. It rose by 0.1 % today thanks to the shares of Biotika.
Markéta Šichtařová - Director of nextfinance.cz
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