Forex News

• US Dollar Index strengthens as safe-haven demand rises amid heightened Middle East tensions.
• Saudi Arabia signals potential direct military engagement in the Iran conflict.
• Fed’s Mary Daly said higher oil prices could complicate the Federal Reserve’s policy outlook.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, recovers its recent losses from the previous day and is trading around 99.40 during the early European hours on Tuesday. Traders remain focused on incoming economic data, with the flash S&P Global US Purchasing Managers’ Index (PMI) for March due later in the day, which could provide fresh insights into the health of the US economy.

Heightened uncertainty surrounding the Iran conflict has driven investors toward the Greenback, reinforcing its appeal during periods of market stress. Geopolitical risks have intensified as US-aligned Gulf states move closer to direct involvement in the Iran conflict. Potential attacks on critical energy infrastructure would raise fears of broader regional instability.

According to a Wall Street Journal report, Saudi Arabia has signaled a potential shift toward more direct military engagement, highlighting growing concern among key regional players. Meanwhile, Israel and the United States have launched a new wave of strikes on Iran, with Tehran responding by escalating attacks on Gulf neighbors and issuing threats against regional assets.

Israel confirmed a second round of strikes targeting infrastructure in Tehran, while senior military adviser Mohsen Rezaei stated that the conflict would continue until Iran is fully compensated for damages.

The US Dollar gained ground on Monday after US President Donald Trump delayed planned strikes on Iranian energy infrastructure by five days, citing productive discussions with Tehran. However, Iranian Foreign Minister Abbas Araghchi denied that any engagement with Washington had taken place, underscoring conflicting narratives.

Adding to the uncertainty, Reuters reported that Mary Daly, President of the Federal Reserve Bank of San Francisco, indicated that if the conflict persists and leads to sustained increases in oil prices, it could complicate the Fed’s policy outlook. Daly noted that unless the situation stabilizes quickly, it may not be clear what the central bank’s next move on interest rates will be, leaving markets sensitive to both geopolitical and economic developments.

• The Indian Rupee falls back to near 94.30 against the US Dollar after a strong recovery move on Monday.
• The US Dollar gains as Iran pushes back hopes of a resolution of the war in the Middle East.
• Investors await the flash India/US private sector PMI data for March.

The Indian Rupee (INR) resumes its downside journey against the US Dollar (USD) on Tuesday after a strong recovery move the previous day. The USD/INR pair recovers to near 94.30 from the immediate low of 93.30 as the US Dollar gains ground after a steep retracement on Monday, which was driven by the announcement from United States (US) President Donald Trump that he has postponed scheduled military strikes on Iranian power plants for five days.

US Dollar recovers as Tehran dismisses negotiations with US

As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.25% higher to near 99.40 after recovering from the weekly low of 98.88 posted the previous day.

The US Dollar recoups over half of its previous day’s losses as Iran has denied any involvement in negotiations with the US over resolving hostilities in the Middle East. Iran's refusal to the occurrence of de-escalation talks has also resulted in a decent recovery in the oil price, a scenario that bodes poorly for currencies from countries that largely rely on oil imports to meet their energy needs.

On Monday, US President Trump announced that he has instructed the Department of War to hold scheduled military attacks on Iran’s power plants for five days, citing that Washington is having “very good and productive conversations” with Tehran regarding a complete and total resolution of hostilities in the Middle East.

The US Dollar has outperformed strongly in the past few weeks due to an increase in demand for safe-haven assets amid Middle East conflicts and surging energy prices, which have discouraged traders from betting on the Federal Reserve’s (Fed) interest rate cuts this year.

Market experts believe that higher energy prices due to oil supply disruption are expected to stay longer as the damage to energy infrastructure in Gulf economies amid the war is unlikely to be repaired soon, signaling persistent firmness in the US Dollar. “The war has resulted in lasting damage to infrastructure, so even if it's over soon, energy prices may well remain higher,” analysts at Capital Economics said.

Consistent FIIs selling hurts Indian Rupee

The continuous outflow of foreign funds from the Indian stock market is consistently hurting the Indian Rupee. So far in March, Foreign Institutional Investors (FIIs) have remained net sellers on all trading days and offloaded their stake worth Rs. 97,195.12 crore.

On the domestic front, India's preliminary private sector Purchasing Managers Index (PMI) data for March has come in lower due to a slowdown in business activities in both the manufacturing and the services sectors. India's flash Composite PMI has arrived at 56.9, lower than 58.9 in February.

"Output growth eased across both manufacturing and services as the energy shock unfolds. Softer domestic demand weighed on new orders, which rose at the slowest pace in more than three years, despite a record surge in new export orders. Cost pressures intensified, but companies are absorbing part of the increase by squeezing margins," Pranjul Bhandari, Chief India Economist at HSBC, said.

Technical Analysis: USD/INR resumes advance after a sharp retracement

USD/INR trades higher at around 94.30 at the press time. The near-term bias is bullish as price extends above the rising 20-day Exponential Moving Average (EMA), confirming a short-term uptrend.

Momentum remains firm with the 14-day Relative Strength Index (RSI) holding in overbought territory above 70, showing strong buying pressure and limited evidence of exhaustion so far. The sequence of higher closes and the sustained distance above the 20-day EMA underline dip-buying interest on minor pullbacks.

Initial support is at the 20-day EMA near 92.70, where a break would expose secondary support around 92.00. Deeper weakness would target 91.40, aligning with a prior consolidation band. On the upside, immediate resistance emerges at 94.50, with a break opening the way toward 95.20 as the next bullish objective. As long as price holds above 92.70, the upside structure remains intact and pullbacks are expected to be shallow.

(The technical analysis of this story was written with the help of an AI tool.)

TD Securities strategist Pooja Kumra argues that disruptions in Qatar and Iran justify a higher Oil price baseline for 2026 versus pre-crisis levels. The bank keeps its assumption of a mid‑$90s range and notes that even a 10% Oil rise can significantly lift headline inflation. This Oil reset is seen limiting early ECB and BoE rate moves.

Conflict disruptions support higher Oil base

"As mentioned previously, the ongoing disruption in major facilities in both Qatar and Iran argues for a global reset in oil prices for the year. We maintain our assumption that this new level is $90-95 for 2026, compared with $65 per barrel ahead of the crisis."

"A 10% uptick in oil still adds 0.3%-0.4% to headline inflation in the short term."

"An oil shock implies that the inflation hit will precede the growth shock as in the case of the Russia-Ukraine crisis."

"Lower intensity should also taper calls for hikes as soon as the April meetings for both the ECB and the BoE. Meanwhile, we still find it hard to say that markets are ready to return to preconflict terminal pricing."

"As far as central banks are concerned, we doubt that they will change their narrative that quickly based on a single news event. This is particularly the case given that the new baseline for oil prices has shifted dramatically, even if the intensity of war seems to have reduced."

"TD still views any changes in rates from the ECB or the BoE as more likely to be an H2 story."

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

German/ Eurozone flash PMIs Overview

The preliminary German and Eurozone flash HCOB Purchasing Managers’ Index (PMI) data for March is due for release today at 08:30 and 09:00 GMT, respectively.

Amongst the Euro area economies, the German and the composite Eurozone PMI reports hold more relevance, in terms of their impact on the European currency and the related markets as well.

The flash Composite PMI for Germany is expected to come in lower due to a slowdown in both manufacturing and the service sector activity. In February, the Composite PMI came in at 53.2.

Germany’s Manufacturing PMI is expected to have swung to contraction again after returning to growth for a month in February. A figure below 50.0 is considered a contraction in the business activity. The Manufacturing PMI is seen arriving lower at 49.8 from the previous reading of 50.9. Flash Services PMI is estimated to have dropped to 52.5 from 53.5 in February.

The forecast for the Eurozone flash Composite PMI also shows that the overall private sector output expanded at a moderate pace in March due to a decline in the manufacturing sector output and a slowdown in the services sector output growth.

The Composite PMI is expected to come in at 51.1, lower than 51.9 in February. The Services PMI is seen at 51.0, down from the previous reading of 51.9. Like the German Manufacturing PMI, the manufacturing activity in the old continent is estimated to have returned to the declining trajectory. The Manufacturing PMI is seen arriving lower at 49.5 against the prior release of 50.8.

How could German/ Eurozone flash PMIs affect EUR/USD?                 

Signs of continuous strength in the overall business sector activity from the German/ Eurozone flash PMI prints would be favorable for the Euro (EUR), while weak numbers would act as a drag on the shared currency. However, developments regarding the war in the Middle East are expected to be the key driver of the EUR/USD pair.

EUR/USD trades 0.22% lower to near 1.1580 in the early European session. The pair stays pressured below the 20-day Exponential Moving Average (EMA) near 1.16, which keeps the near-term bias mildly bearish despite the recent stabilization off the lows. Price action has carved out a sequence of lower daily closes over recent weeks, and the failed attempts to reclaim the 20-day EMA reinforce a downside-oriented structure.

The 14-day Relative Strength Index (RSI) at 45 remains below the 50 midline, signaling persistent, though not extreme, bearish momentum.

Initial resistance emerges at 1.1610, where the 20-day EMA converges with recent daily highs, and a break above this area would be needed to ease immediate downside pressure. Further resistance stands at the March 10 high of 1.1667. On the downside, immediate support aligns at 1.1510, guarding the recent cluster of lows, with a break exposing an over seven-month low of around 1.1390 as the next bearish target.

(The technical analysis of this story was written with the help of an AI tool.)

• Gold attracts sellers for the tenth straight day amid hawkish stances from major central banks.
• The Iran war fuels inflation fears, bolstering bets that central banks will consider raising rates.
• A fresh leg up in US bond yields and reviving USD demand further undermine the commodity.

Gold (XAU/USD) recovers a major part of intraday losses and climbs closer to the $4,400 mark heading into the European session on Tuesday, though any meaningful recovery still seems elusive. The Iran war continues to fuel inflation fears, curbing bets for interest rate cuts, and could act as a headwind for the non-yielding yellow metal. Furthermore, the emergence of some US Dollar (USD) buying might further contribute to capping the upside for the commodity.

Iran denied that it had held talks with the US to end the war, contradicting US President Donald Trump's remarks on Monday that a deal could be reached soon. Moreover, Mohsen Rezaei, the senior military adviser to Iranian Supreme Leader Mojtaba Khamenei, said that the war will continue until Iran receives full compensation for the damage it has sustained. Adding to this, energy infrastructure in Iran has reportedly come under renewed pressure, which, along with the effective closure of the Strait of Hormuz, assists Crude Oil prices to regain positive traction. This, in turn, bolsters bets that central banks around the world will once again consider raising interest rates to curb renewed inflationary pressures and keeps the Gold price depressed for the tenth straight day.

Meanwhile, traders have nearly fully priced out the possibility of any further interest rate cuts by the US Federal Reserve (Fed) and are rapidly increasing bets for a hike by the end of this year. This, in turn, triggers a fresh leg up in US Treasury bond yields, which assists the USD to regain positive traction and contributes to driving flows away from the precious metal. That said, fading hopes for a de-escalation of tensions in the Middle East keep a lid on the overnight market optimism. This, in turn, could offer some support to the safe-haven Gold and hold back bearish traders from placing aggressive bets. As the US-Iran conflict drags on further, market participants now look forward to the release of the global flash PMIs to grab short-term opportunities.

XAU/USD daily chart

Gold bears might now await break below $4,300 before placing fresh bets

From a technical perspective, last week's breakdown below the 100-day SMA was seen as a key trigger for the XAU/USD bears. The subsequent slump, however, found decent support near the 200-day SMA, around the $4,100 mark, which should now act as a key pivotal point.

Meanwhile, the Moving Average Convergence Divergence (MACD) indicator (12, 26, 9) remains below its signal line in negative territory with an expanding downside histogram, reinforcing strengthening selling pressure. The Relative Strength Index (RSI) at 25.82 sits in oversold territory, which highlights downside dominance but also warns that the current bearish leg is becoming stretched.

In the meantime, the current low around $4,305 is the first support to watch, and a decisive close below this level would extend the downtrend back toward the $4,100, nearer to the 200-day SMA, where medium-term dip buyers could attempt to stabilize the metal.

On the upside, immediate resistance emerges near $4,650, where a recent consolidation high aligns ahead of the falling short-term trajectory and guards the $4,820 area, with the 100-day SMA higher around $4,610 acting as an intermediate dynamic cap. A break above these layers would be needed to ease bearish pressure and open the way toward $5,000.

(The technical analysis of this story was written with the help of an AI tool.)

BNY strategist John Velis says the March FOMC broadly matched expectations, with no rate change and minimal forward guidance, while markets swiftly repriced toward a more hawkish path. He highlights that the Middle East conflict and higher energy prices have driven inflation expectations up, leaving the Federal Reserve (Fed) on hold and making the future rate trajectory highly uncertain.

FOMC uncertainty and shifting expectations

"The March FOMC met our expectations, with no rate changes, no major changes to the Summary of Economic Projections, and little – if any – forward guidance to the future path for policy rates. None of this surprises us, although markets were quick to price in a more hawkish path for rates thereafter. This, too, shouldn’t be terribly surprising given the increase in inflation expectations due to higher energy (and other industrial materials prices) costs and a Fed that is clearly on hold for now."

"On February 27, the day before the start of the Middle East conflict, implied expectations from the OIS curve indicated around 60bp in cuts by December this year. As of this writing, just before the Monday open in the U.S., the market now sees nearly 18bp of tightening, essentially moving from two cuts to nearly a full hike by year end.

"While this repricing is understandable, we think the rate path is far from set in stone. The duration of the war and the increase in energy and other industrial materials prices are major unknowns. Just this morning, word of a U.S. standdown has moved markets for now."

"We feel at a loss to assign meaningful, high-conviction probabilities to any plausible scenario. However, another scenario would be for inflation to remain elevated or rise further, taking inflation expectations with it. In that scenario, with no changes in rates, the real policy rate, net of inflation, would actually be falling, preventing the Fed from cutting the nominal rate for the remainder of the year."

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

Commerzbank analyst Volkmar Baur highlights that Japanese inflation fell more than expected in February, with weak services and food prices pointing to ongoing disinflation despite higher Oil. He argues this backdrop does not force immediate Bank of Japan action, expects a conservative policy response to rising energy costs, and sees the Japanese Yen benefiting if the Iran conflict ends.

Soft core pressures limit BoJ urgency

"Japanese inflation fell more sharply than expected in February. The year-over-year increase last month was just 1.3%, down 0.2 percentage points from January and below the median forecast of analysts surveyed by Bloomberg."

"Seasonally adjusted, prices fell by 0.3% from the previous month, though it must be noted that this was largely driven by a decline in energy prices. While this may give the impression that the figures are outdated in light of the Iran conflict and offer little insight into the future, it’s not quite that simple."

"For one thing is clear: the rise in oil prices is likely to push inflation in March about 0.3 percentage points higher than in February, driven by gasoline prices alone. However, the figures also show that overall inflationary pressure appears to continue easing."

"All in all, this is likely an environment that does not compel the Bank of Japan to take immediate action. Rising energy prices will indeed push up inflation. However, disinflationary trends still predominate for the moment. The Bank of Japan is therefore likely to react much more conservatively to the rise in energy prices, though the market is already anticipating this. Conversely, this means that if the conflict ends, the JPY is likely to benefit."

"Price data from March also suggests that while gasoline prices are rising significantly, this does not yet seem to be affecting food prices. Prices for fruits, vegetables, and rice appear to have continued to fall slightly in March, which should further dampen the rise in inflation during that month. Furthermore, Japan benefits in this case from the fact that gasoline accounts for only 1.8% of the consumer price basket—significantly less than in other countries."

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

• USD/CAD jumps to near 1.3760 as the US Dollar recovers after Iran denies any negotiation talks with the US.
• US President Trump instructed a pause on scheduled military attacks on Iran’s power plants for five days.
• Oil prices' recovery has offered support to the Canadian Dollar.

The USD/CAD pair trades 0.25% higher to near 1.3760 during the early European session on Tuesday, the highest level seen in almost two months. The Loonie pair gains as the US Dollar (USD) bounces back after Iran dismissed the announcement by United States (US) President Donald Trump, claiming talks regarding the de-escalation of the war in the Middle East.

During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.2% higher to near 99.35. On Monday, the USD Index turned upside down after US President Donald announced a pause on scheduled military attacks on Iran’s power plants, citing that ongoing talks with Tehran from the last two days regarding a complete and total resolution of our hostilities in the Middle East were “very good and productive”.

Iran’s dismissal to negotiations with the US has revived risk-off sentiment, improving demand for safe-haven assets, such as the US Dollar.

On the domestic front, traders remain confident that the Federal Reserve (Fed) will either hold interest rates steady or raise them this year amid higher energy prices due to supply shocks.

Though investors have underpinned the Canadian Dollar (CAD) against the US Dollar, the former trades firmly against its other peers as oil prices have also rebounded after Iran’s refusal to de-escalation talks with the US. Given that Canada is a net oil exporter, an energy supply shock is a favorable scenario for the Canadian Dollar.

USD/CAD technical analysis

In the daily chart, USD/CAD rises to near 1.3760 in Tuesday's European session. The near-term bias is mildly bullish as spot extends above the 20-day Exponential Moving Average (EMA), which has started to edge higher and underpin the recent series of higher daily closes.

The 14-day Relative Strength Index (RSI) around 61 confirms improving upside momentum rather than stretched conditions, suggesting buyers retain control while the pair holds above the short-term average.

Initial support emerges at 1.3685, aligning with the rising 20-day EMA, with a deeper floor at 1.3640, where the latest pullback base formed. A break below 1.3640 would weaken the bullish structure and expose the 1.3585 region next. On the topside, immediate resistance stands at the January 23 high of 1.3700, ahead of a more significant barrier near 1.3840, where a rejection would signal fading upside pressure.

(The technical analysis of this story was written with the help of an AI tool.)

Bank of Japan (BoJ) Governor Kazuo Ueda said on Tuesday that he expects underlying inflation to accelerate moderately. Ueda added that he will guide monetary policy appropriately to stably achieve our inflation target accompanied by wage gains. 

Key quotes

Expect underlying inflation to accelerate moderately. 

Tight labour market, firms active wage, price-setting behaviour will maintain cycle in which wages and prices rise in tandem. 

Temporary freeze of food sales tax may briefly lower inflation but likely has limited impact on inflation expectations. 

Will guide monetary policy appropriately to stably achieve our inflation target accompanied by wage gains. 

Market reaction

As of writing, the USD/JPY pair is up 0.13% on the day at 158.65.

• EUR/GBP flat lines near 0.8650 in Tuesday’s early European session. 
• Goldman Sachs analysts expect ECB rate hikes in April and June. 
• BoE stated it is ready to act to hit the inflation target.  

The EUR/GBP cross trades on a flat note around 0.8650 during the early European session on Tuesday. The pair faces a volatile session amid escalating geopolitical tensions in the Middle East and shifting expectations for central bank policy. The preliminary readings of the Purchasing Managers' Index (PMI) for March from the United Kingdom (UK) and the Eurozone are due later on Tuesday. 

The European Central Bank (ECB) held its key interest rates steady at its March meeting last week, with the deposit rate at 2.00%. Despite the pause, mounting inflation fears driven by the Middle East conflict and soaring energy prices have spurred expectations of rate hikes. Goldman Sachs analysts said it expects the ECB to deliver two 25 basis point (bps) interest rate hikes in April and June, joining peers J.P.Morgan and Barclays. 

On the UK’s front, the Bank of England (BoE) decided to leave interest rates unchanged at 3.75% last week. The UK central bank stated that it was "ready to act" to see off risks from war in the Middle East, prompting traders to ramp up their bets on higher ‌borrowing costs later this year.

The attention will shift to the UK February inflation report on Wednesday. The UK Consumer Price Index (CPI) is expected to see an increase of 0.4% MoM in February versus -0.5% prior. If the report shows a hotter-than-expected outcome, this could support the Pound Sterling (GBP) against the Euro (EUR) in the near term.