Greg Gibbs, Analyst at Amplifying Global FX Capital, suggests that the US economy is in a better position than Europe to benefit from higher oil prices due to its growing energy sector.What is his thesis for reaching that conclusion? Let us see!
22 May, GKFX – Already it seems business investment in the sector will help support overall US manufacturing. Recent US regional manufacturing surveys have been strong. We should expect this to play out in the Richmond Fed and Markit PMI this week.
Higher oil prices benefit the US over Europe – How?
We might also see improvement in the Eurozone PMI after its fall over the first four months of the year. As Draghi noted in his April press conference, some of the decline appears to be driven by temporary factors – cold weather, strikes, and the timing of Easter. This may help the EUR recover in the near term.
The Eurozone is increasingly dependent on oil imports and thus may see higher oil prices as a factor dampening economic confidence. Higher oil prices will add to inflation, but the ECB is likely to view much of this impact as transitory and thus not a reason to speed up QE exit.
However, the EU’s efforts to retain trading relations with Iran may result in the use of EUR in the place of the USD to trade in oil. At the margin, this may result in demand for EUR over the USD.
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