Forex News

MUFG’s Derek Halpenny notes that the recent retracement in Brent has eased immediate upward pressure on the Dollar, but he doubts the move will last given ongoing Middle East tensions and constrained supply. He highlights that higher Oil prices from current levels appear more likely, and that a deterioration in global growth expectations could see the Dollar extend gains further.

Dollar sensitivity to Brent strengthens

"So it’s hard to be convinced on the prospect of the retracement in crude oil prices lasting and it probably wouldn’t take much to see investor concerns escalate and crude to take another lurch higher."

"With the potential for this optimism to fade again quickly we continue to see scope for the dollar to extend gains further."

"If growth expectations deteriorate, then yield spreads will become less influential and the dollar would likely then extend gains further."

"At this juncture higher oil prices from current levels seems more likely than a further retracement lower."

"The DXY correlation with yield spreads has weakened considerably with a correlation with Brent taking over and hence we continue to see EUR/USD downside risks related to the conflict."

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

ING’s Francesco Pesole notes that the Bank of England surprised markets with a unanimous hold and strong guidance that it is ready to act against any inflation spike. Markets added substantial tightening by year-end, though ING views this as too aggressive. The repricing has stabilised EUR/GBP, while GBP/USD remains driven mainly by Oil but supported by the BoE’s hawkish stance.

BoE repricing backs Pound but oil still key

"The Bank of England surprised on the hawkish side with a 9-0 vote in favour of a hold, as consensus was that two members would still vote for a cut. Incidentally, the MPC’s most dovish member, Swati Dhingra, openly discussed a rate hike to “stabilise rate setting dynamics” in case of a sharp rise in inflation."

"The key takeaway from the statement was the BoE is “ready to act” against an inflation spike, and markets added a mammoth 50bp of hikes by year-end, for a total of 70bp. While it’s often the case that hikes come in couples, we still believe market pricing is too aggressive, considering much less favourable conditions for second round effects relative to 2022."

"The repricing of both ECB and BoE rate expectations has kept EUR/GBP relatively stable, with all the action happening in GBP/USD. Oil prices are now back in the drivers’ seat, but the hawkish BoE tilt is offering some extra support."

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

DBS Group Research economist Radhika Rao notes that the ECB kept rates unchanged but highlighted spillover risks from geopolitical tensions, with updated projections showing higher Eurozone inflation and weaker growth. She stresses that policymakers will watch for demand effects from supply shocks, and that rate hikes could re‑enter consideration in 2Q–3Q if energy-driven risks and Euro depreciation persist.

ECB steady rates but flags hawkish risks

"The ECB left the benchmark rates unchanged on Thursday. While the guidance was balanced, the council was “closely monitoring” spillover risks from geopolitical tensions as against February’s “inflation stabilises at its 2% target”, setting the stage for caution and a potential hawkish pivot in the upcoming meetings if risk scenarios materialise."

"We expect policymakers to watch for signs that the current supply-side shock is beginning to weigh on demand before taking action. Updated staff projections lifted inflation (headline and core) and lowered the growth outlook, besides releasing scenarios to incorporate the risk of sharp moves in energy prices."

"Under an adverse scenario (oil & gas to peak at $119/bl and EUR87/MWh), inflation faces a potential +0.9pp upside vs baseline in 2026 and+ 0.1pp in 2025, which could rise to +1.8pp for 2026 under a severe scenario. To recall, inflationary expectations are lower and the benchmark rate higher than the starting point of the 2022 energy shock, which suggests that the bar for a swift pivot to rate hikes is higher than current market pricing implies."

"Depending on the tone of the April policy communication, rate hikes could return to the table in 2Q-3Q, particularly if the conflict spills over into the next quarter."

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

MUFG’s Derek Halpenny highlights that the Bank of England’s unanimous hold and sharp front-end repricing have driven a notable rise in UK yields, supporting the Pound. He judges the rates move as somewhat overdone and warns that a worsening Middle East situation and higher energy prices could hit equities, reverse some tightening and erode GBP support from yields.

BoE shock and yield surge back Pound

"However, our conclusion following the scale of the moves yesterday is that the rates moves look a little overdone."

"However, we maintain that if the situation in the Middle East continues to worsen and energy prices advance further, the resilience of equity markets is likely to change and sharper falls in equities will likely see some of the scale of tightening priced being reversed."

"The pound is deriving support from the surge in yields (although less support than usual for such a scale of rates move) and that will likely give way if broader risk conditions worsen."

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

ING’s Francesco Pesole highlights that the ECB’s cautious tone masks a hawkish shift, with officials reportedly considering an April rate hike if inflation overshoots. Markets now price earlier tightening and higher odds of back-to-back moves. ING sees increased upside potential for the Euro, with EUR/USD possibly targeting 1.170 if war tensions ease and no new gas supply shocks emerge.

ECB April hike talk lifts EUR prospects

"The ECB opted for a cautious tone in light of energy price volatility yesterday, but President Christine Lagarde’s press conference had a hawkish undertone as she conveyed a sense of heightened concern for upside risks to inflation. But even more importantly, Bloomberg later reported that ECB officials are already considering a rate hike in April should inflation rise too far above target."

"Putting April on the table (now 15bp priced in) means that the ECB may be ready to act aggressively and pre-emptively, intuitively raising the chances of back-to-back increases."

"Our economists aren’t ready to pencil in a rate hike yet as a positive turn in the war and energy prices can still discourage the hawks. But the chances of a hike have undoubtedly increased, which raises the upside potential for the euro beyond the near-term impact of energy prices."

"Further EUR gains from here depend on no additional major shocks to gas supply."

"We think caution is very much warranted in EUR/USD at this moment, as the pair seems to be trading a bit too strong considering where oil and gas prices are. But should we see some de-escalation over the weekend, EUR/USD could be eyeing 1.170 soon, backed by a hawkish ECB message."

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

Derek Halpenny at MUFG underlines that Brent’s sharp pullback from near USD 120 to below USD 105 has been driven by hopes of conflict de-escalation, but he questions its durability. He points to ongoing attacks, curtailed supply, falling seaborne inventories and potential US sanctions relief on Iranian Oil, arguing that higher Brent prices from here are more likely than a deeper retracement.

Supply constraints challenge price retracement

"After nearly hitting USD 120 p/bl Brent crude oil fell below the USD 105-level yesterday on hope that the conflict could de-escalate."

"So it’s hard to be convinced on the prospect of the retracement in crude oil prices lasting and it probably wouldn’t take much to see investor concerns escalate and crude to take another lurch higher."

"Brent is drifting higher again today as supply continues to be curtailed."

"Bloomberg is reporting data from Vortex indicating the rapid decline in crude oil in storage at sea which could soon result in the US formally lifting sanctions on Iranian oil already at sea."

"At this juncture higher oil prices from current levels seems more likely than a further retracement lower."

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