Still king – why the petrodollar isn’t going anywhere soon
At a Glance
The desk argues that while discussions about the petrodollar's potential decline have resurfaced due to geopolitical tensions, its dominance remains largely intact. Per the full note from ING, they highlight that shifts in oil trade settlement are likely to be gradual rather than transformative, with major energy exporters continuing to favor dollar-denominated assets. Current currency forecasting indicates mixed projections for the EUR/USD, GBP/USD, and USD/JPY, suggesting nuanced views on the dollar's future strength, especially against the backdrop of inflation and interest rate trajectories.
Key Takeaways
- 01Petrodollar dominance continues despite geopolitical tensions.
- 02Gradual shifts in oil settlement suggest limited risk to dollar supremacy.
- 03Consensus targets for EUR/USD reflect mixed firm views amid current market volatility.
- 04The outlook for USD/JPY appears particularly sensitive to Federal Reserve policy shifts.
Full Analysis
What the desk is arguing
The desk posits that the petrodollar will continue to thrive despite recent debates about its future viability. Per the full note, the authors caution against overly dramatic claims of decline, asserting that any shifts in oil trade and savings allocation will be gradual.
Key evidence is the persistent preference among Gulf oil producers to invest their savings into dollar assets, supported by their longstanding relationships with Western financial markets. Considering central bank policies globally, the U.S. dollar remains favored, particularly in light of inflationary pressures making alternatives less attractive for major energy exporters.
Where it sits in our coverage
For the EUR/USD pair, our internal consensus target is 1.1700, with a range between 1.1200 and 1.2000. Specific firm projections include: - barclays: Mar26 at 1.1700 - deutschebank: Mar26 at 1.1800 - jpmorgan: Mar26 at 1.1800
The desk's position aligns closely with bofa, which maintains an upper consensus at 1.2200 for the same tenor, indicating a cautiously optimistic outlook regarding the euro's recovery against the dollar.
How other firms see it
Firms such as hsbc and deutschebank share a more bullish stance on the USD against the EUR, with both expecting a modest increase by March. Meanwhile, mufg is anticipating a slightly lower target of 1.3500 for GBP/USD through Dec-26, reflecting a more bearish view on the GBP's ability to weather macroeconomic challenges.
Movements in the EUR/USD could correspond with significant events influenced by the ECB and the Fed's monetary policy adjustments, alongside inflation trends across the Eurozone and the UK.
Market Implications
Watch the EUR/USD closely as it hovers around 1.1567, with the potential to break towards consensus levels if macroeconomic indicators align favorably. Upcoming inflation data and central bank communications should provide insight into market sentiment around the dollar's strength.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
MUFG | Bullish | 1.1800 |
Danske Bank | Bearish | 1.1100 |
UBS | Bullish | 1.1800 |
From the original
Articles Still king – why the petrodollar isn’t going anywhere soon 13:51 FX Trade China Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Recent tensions in the Middle East have revived debate about whether the petrodollar system is starting to fragmen
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