The escalation of tensions in the Middle East has renewed investor interest in the US dollar, halting the downward trend seen earlier this year. In an environment dominated by uncertainty, market participants are once again turning to the most liquid currency in the global financial system, prompting a sharp rebound of the greenback.
This appreciation comes despite expectations of monetary easing by the Federal Reserve, which would normally weigh on the dollar. For now, however, geopolitical risks overshadow monetary considerations, reinforcing the dollar’s role as a safe‑haven asset.
This movement could nonetheless prove temporary. Should hostilities ease and geopolitical visibility improve, fundamental factors — notably the prospect of lower policy rates — may regain prominence. In such a scenario, the dollar’s momentum could fade, bringing it back toward the more moderate trend that prevailed before the escalation of the conflict.
The year 2026 was expected to mark Europe’s comeback, supported by improving fundamentals, well oriented leading indicators and a more favorable earnings momentum. The prospect of diversification away from the United States had revived flows into European equities, pointing to a continuation of regional outperformance.
However, the outbreak of the conflict in the Middle East and the surge in energy prices have clouded the short term outlook. More exposed due to its reliance on energy imports and its sensitivity to the global cycle, Europe appears more vulnerable than the United States. Against this backdrop, and following the strong rally since the autumn, we have prudently reverted to a neutral weighting.
Uncertainty remains elevated, particularly regarding the duration of the conflict. According to the ECB, a sustained 14% increase in energy prices could shave 0.1 percentage point off growth and push inflation up by as much as 0.5 percentage point. While this risk has revived expectations of monetary tightening, we consider them excessive unless prolonged stress in energy markets.
The current energy shock, which started from a lower baseline, remains limited and differs significantly from that of 2022. It is primarily driven by oil prices, while gas prices, although rising, are hovering near the upper end of their post‑2022 trading range.
In this context, any monetary tightening in response to inflation would likely be more limited than in 2022, given the markedly different underlying conditions. At that time, the ECB maintained an accommodative monetary stance despite already elevated inflation. Today, by contrast, with the policy rate at 2% and inflation close to the 2% target over the past year, monetary policy is already positioned in restrictive territory.
So far, the equity market correction has remained moderate: the STOXX 600 has declined by around 7%, returning to its November 2025 levels. Investor sentiment has deteriorated, but without tipping suggesting that the correction could continue in the short term. Finally, beneath resilient headline indices, pronounced sector divergences are emerging, creating attractive medium‑term entry points, particularly among cyclical stocks.
Job creation defied expectations in March in the United States, despite the outbreak of war in the Middle East. In this context, the unemployment rate edged down slightly to 4.3%.