Forex News

BNP Paribas argues emerging economies face a renewed stagflationary energy shock, but are not generally more vulnerable than in 2022. The bank highlights limited exchange rate depreciation, existing price-mitigation schemes, and stronger reserves. However, it warns that higher hydrocarbon prices will still weigh on growth and inflation, with some low‑income and frontier markets facing heightened solvency and external liquidity risks.

Stagflation risk but broader resilience

"Whether the scenario entails a moderate but sustained rise in oil prices or a very sharp but temporary rise, macroeconomic simulations show that the negative impact on growth for net importers far outweighs the positive impact for net-exporters countries. In the first scenario, there would be no positive impact for exporting countries whatsoever. Indeed, a commodity price shock is never a zero-sum game."

"Compared with 2022, there are three moderating factors. First, the spike in hydrocarbon prices has not spread to the prices of key agricultural commodities (wheat, maize, cotton, rice). Second, although Asian countries are experiencing direct impacts from supply disruptions, they are benefiting more than other EMs from the development of artificial intelligence."

"The direct impact on inflation will depend on: i) the share of energy in price indices; ii) fluctuations in the exchange rate relative to the US dollar; iii) the introduction (or strengthening) of mechanisms to mitigate the rise in energy prices for consumers or producers. Furthermore, the overall effect of the shock will be determined by its spillover to the broader price level: it will be more significant the higher the inflation rate and/or the further along the economy is in the economic cycle."

"Overall, financial conditions remain largely unaffected The shock has put pressure on domestic interest rates. In Asia, the rise has been moderate (35 basis points [bp] or less), except for the Philippines (+70 bp). It has also been moderate in Brazil and Mexico (+40 bp)."

"For emerging economies, the risk of a balance of payments crisis associated with a spike in energy costs is, in principle, low. Nevertheless, Argentina, Egypt, Pakistan and Ukraine require support from financial institutions and major international banks to service their external debt."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• US private employers added an average of 9K jobs per week in late February.
• Job gains lose momentum following three straight weeks of increases.

Private-sector hiring in the US appears to have lost a bit of momentum toward the end of February. According to the NER Pulse, the weekly companion to the ADP National Employment Report, companies added an average of just 9K jobs per week in the four weeks through February 28.

That marks a pause after three consecutive weeks of decent gains, hinting that the recent improvement in hiring may be starting to level off.

The focus now shifts to the usual weekly labour market data, which should help determine whether this softer patch is temporary or a sign that the broader US jobs backdrop is losing steam.

• EUR/JPY extends its advance as the Japanese Yen weakens ahead of the Bank of Japan decision.
• Japanese authorities remain on alert amid rising volatility, limiting downside risks for the Japanese Yen.
• The Euro finds support from easing Oil prices, improving market sentiment.

EUR/JPY trades around 183.25 on Tuesday at the time of writing, up 0.14% on the day, extending its gains for a second consecutive session. The cross is supported by the weakness of the Japanese Yen (JPY), as markets widely expect the Bank of Japan (BoJ) to keep its policy rate unchanged at 0.75% at Thursday’s meeting.

However, downside pressure on the Japanese currency could remain limited. Japan’s Finance Minister Satsuki Katayama warned that financial market volatility is increasing and stated that authorities stand ready to act if necessary, including in the foreign exchange market. This intervention risk may help stabilize the JPY.

At the same time, BoJ Governor Kazuo Ueda noted that underlying inflation is gradually moving toward the central bank’s 2% target, adding that policy will be guided appropriately to ensure stable and sustainable price growth. Despite these relatively constructive remarks, investors still expect the BoJ to hold rates steady this week while keeping the door open for future tightening.

On the European side, the Euro (EUR) is supported by a decline in Oil prices, which helps improve the economic outlook for the Eurozone, given its strong reliance on energy imports. Crude prices eased as several tankers safely crossed the Strait of Hormuz and major economies signaled potential releases of strategic reserves to offset supply risks.

Attention also turns to the European Central Bank (ECB), which is expected to leave interest rates unchanged at Thursday’s meeting, with the deposit rate seen at 2% and the main refinancing rate at 2.15%. Nevertheless, money markets continue to price in a potential rate hike by mid-year, as some policymakers, including Peter Kazimir, highlight upside inflation risks linked to geopolitical tensions.

In this context, EUR/JPY dynamics remain driven by the divergence between a cautious Bank of Japan and a European Central Bank that could turn more restrictive over time, while also reacting to shifts in global risk sentiment.

Rabobank Strategist Molly Schwartz and Christian Lawrence note that Canadian GDP contracted 0.6% quarter‑over‑quarter in Q4 2025 but still rose 0.7% year‑over‑year, with weakness driven by inventory drawdowns. They highlight that consumer spending and exports have rebounded modestly, yet warn that higher energy prices linked to the war in Iran could strain households and weigh on broader Canadian demand.

Energy boost offsets fragile domestic demand

"Canadian GDP fell by 0.6% quarter-over-quarter in Q4 2025 but still managed to grow 0.7% year-over-year. The quarterly contraction was driven mainly by business inventory drawdowns—particularly in manufacturing and wholesale—which marked the first annual decline in inventory levels since 2020. However, GDP was supported to the upside by consumer spending and exports."

"While we have frequently emphasized the economic risks tied to tariffs and the USMCA, the war in Iran has now shifted into focus. The implications for Canada are complex; as a net energy exporter, Canada should see higher energy prices boost the value of its exports and support GDP in the near term. However, we expect this lift to be limited for the broader economy."

"...the key point is that rising fuel costs will strain households, forcing consumers to shift spending away from discretionary items toward necessities like gasoline."

"Since energy costs feed into the price of nearly all goods and services, this pressure risks triggering a broader pullback in Canadian consumer demand."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

BNY’s Head of Markets Macro Strategy Bob Savage highlights U.S. diesel prices breaking above $5 per gallon for the first time since 2022, warning of pass‑through to transport and broader inflation and potential political risks into the U.S. midterms.

Energy price shock posing potential political risks

"U.S. diesel prices have surged above $5 per gallon, reaching $5.044. This marks the first time they have exceeded this level since December 2022, driven by supply disruptions linked to the Iran conflict and the effective closure of the Strait of Hormuz."

"The spike reflects constrained flows of crude, refined fuels, natural gas and fertilizers from the Persian Gulf, with diesel particularly impacted given the region’s refining capacity."

"The increase has already been evident across multiple states and extended to heating oil, which also moved above $5."

"Elevated diesel prices are expected to feed through to transportation, agriculture and construction costs, amplifying broader inflationary pressures and posing potential political risks as the U.S. midterm elections approach."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Commerzbank's FX & Commodity Analyst Volkmar Baur reports that Chinese Aluminium production has risen nearly 3% year-on-year and is running above the government’s annualized cap, supported by higher Aluminium prices and redirected Alumina flows as the Strait of Hormuz remains blocked. The bank warns that if Beijing does not raise the cap, smelters will eventually need to scale back output later in the year.

High prices and alumina surplus drive output

"It is expected that Chinese production figures will remain above the 3.75 million-ton threshold in the coming months as well. As long as the Iran conflict persists and renders the Strait of Hormuz impassable, production disruptions in the Gulf region are likely to continue."

"This has led to a 9% increase in the price of aluminium since the conflict began."

"In addition, the closure of the Strait of Hormuz is leading to a global oversupply of alumina. Alumina (or aluminium oxide) is primarily used for aluminium production and is imported into the Gulf region as a feedstock for aluminium production."

"Both rising aluminium prices and a surplus of alumina therefore make it economically lucrative (at least for the moment) for Chinese smelters to produce above the government’s cap. If this cap is not raised, production would have to be scaled back accordingly over the course of the year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• Gold remains subdued ahead of major central bank decisions this week.
• Markets focus on forward guidance as Oil-driven global inflation risks complicate the outlook.
• On the 4-hour chart, XAU/USD maintains a bearish near-term bias as price trades below key SMAs.

Gold (XAU/USD) trades in a tight range on Tuesday as traders remain cautious and avoid large directional bets ahead of a heavy week of monetary policy announcements from major central banks. At the time of writing, XAU/USD trades virtually unchanged around $5,008, hovering near one-month lows.

Focus on central banks as inflation risks resurface

The upcoming policy decisions from major central banks, including the Federal Reserve (Fed), European Central Bank (ECB), Bank of England (BoE), Bank of Japan (BoJ), Bank of Canada (BoC), and the Swiss National Bank (SNB), come at a particularly sensitive time for global markets.

While all are widely expected to keep interest rates unchanged, the focus will be firmly on forward guidance and how policymakers assess the future policy path, as elevated Oil prices driven by the ongoing US-Iran war raise concerns about renewed inflationary pressure.

This backdrop has strengthened expectations that central banks may delay cuts on borrowing costs to keep them higher for longer. Higher interest rates increase the opportunity cost of holding non-yielding assets such as Gold, which is reflected in the metal’s steady downside pressure since the Middle East war began as markets started to reprice the global interest-rate outlook in a more hawkish direction.

Traders now anticipate only around 25 basis points (bps) of Fed rate cuts by year-end, down from earlier expectations of more than 50 bps. According to the CME FedWatch Tool, the Fed is expected to remain on hold through April, June and July. September is currently seen as the most likely timing for a rate cut, with a probability of around 50.8%.

Strait of Hormuz tensions keep markets on edge

Meanwhile, escalating geopolitical tensions continue to support Gold prices, helping to limit deeper losses. The ongoing conflict between the US-Irael and Iran shows no clear signs of de-escalation, while disruptions in the Strait of Hormuz persist, keeping energy markets on edge.

US President Donald Trump has called on other countries to help secure the Strait, urging nations that rely on the route to support his country's efforts. However, international backing remains limited.

Japan's defense minister said it has no plans to send ships, UK Prime Minister Keir Starmer noted Britain would “not be drawn into the wider war,” while Spain’s Foreign Minister Jose Manuel Albares remarked, “We must not do anything that adds even more tension or escalation.”

Arsenio Dominguez, Secretary-General of the International Maritime Organization (IMO), said naval escorts through the Strait of Hormuz would not “100 per cent guarantee” the safety of ships transiting the critical waterway. He added that military assistance is “not a long-term or sustainable solution,” according to the Financial Times.

Technical analysis: Downside bias holds below key SMAs

On the 4-hour chart, XAU/USD remains under pressure below the 100-period Simple Moving Average (SMA) near $5,158, with the 200-period SMA at $5,061 acting as immediate resistance.

The Relative Strength Index (RSI) has slipped to around 39, suggesting bearish momentum without entering oversold territory, while the Average Directional Index (ADX) near 35 signals a strengthening trend that currently favors the downside.

On the upside, a decisive break above the 200-period SMA near $5,061 could pave the way toward the 100-period SMA around $5,158. A sustained move above these levels could extend gains toward the $5,200 region.

On the downside, initial support stands at Monday’s low at $4,967, with a break below exposing the $4,850 and $4,650 levels as the next downside targets.

Commerzbank’s Commodity Analyst Carsten Fritsch notes that Gold has fallen about 5% since the Iran war began, struggling to act as a safe haven as a stronger Dollar and repriced Fed expectations weigh. ETF outflows have reversed earlier inflows, and he argues that a cautious FOMC is unlikely to provide fresh impetus for Gold unless rate-cut prospects are clearly kept open.

Safe-haven role challenged by Fed repricing

"The gold price is struggling to fulfil its role as a safe haven in times of crisis. It is currently trading at just over USD 5,000 per troy ounce. Since the start of the war in Iran two and a half weeks ago, the gold price has thus fallen by around 5%. The US dollar, which has risen significantly in value since the start of the war, has provided headwinds for the gold price. "

"However, there have also been periods in the recent past where the gold price has been able to defy a stronger US dollar. This is not the case this time due to the correction in expectations regarding Fed interest rate cuts. By the end of last week, Fed Funds futures were no longer pricing in even a 25-basis-point rate cut by the end of the year."

"This means that almost 50 basis points of expected rate cuts have been priced out of the market since the start of the war. This is primarily due to the sharp rise in oil prices and the resulting inflationary risks. Rising interest rates, or fewer rate cuts, increase the opportunity cost of holding gold."

"If the door remains open for interest rate cuts, the gold price could rise again. However, the considerable uncertainty surrounding the duration of the war and the disruption to oil supplies is likely to make the Fed cautious about making too clear a statement on the future interest rate path. The FOMC meeting is therefore unlikely to provide any new impetus for the gold price."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)