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TD Securities strategists argue the Dollar is acting as a conditional safe haven during the Iran-related shock, helped by the US economy’s relative insulation and prior short USD positioning. They see near-term USD upside as risk premia stay elevated, but maintain a bearish 2026 view given fading US growth exceptionalism, fiscal concerns and diminished haven appeal.

Dollar gains seen as tactical and temporary

"USD upside should persist while risk and uncertainty premia remain elevated, potentially echoing the price action seen in June 2025 for a few weeks until a regime shift happens in Iran with US backing or even through a prolonged but limited regional war (with lower intensity strikes spread out and no ground invasion). We are not yet changing our bearish USD view for 2026, given fading US growth exceptionalism, diminished safe-haven appeal, and the ongoing “Hedge America” trade, which may intensify after recent US actions."

"Tail risks have grown large enough to warrant attention and hence we offer a playbook for the scenario of escalation and extended conflict."

"In this scenario, the US prioritizes the inflation shock, keeping the Fed on hold, while peers face simultaneous growth and inflation shocks, pushing rate differentials further in USD’s favor. In terms of macro impact, China, Europe and EM Asia will be most exposed."

"We see scope for a near-term USD positioning adjustment, but expect some limits to escalation on both sides of the conflict, particularly in a US midterm election year. An extended war will complicate the Fed's ability to cut interest rates at a time when Trump has prioritized affordability to shore up voter support."

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

Pete Hegseth, United States (US) Secretary of War, said that Iran made a big mistake targeting its neighbors at a Pentagon briefing alongside Chairman of the Joint Chiefs of Staff General Dan Caine on Tuesday

Key takeaways:

Iran made a big mistake by targeting its neighbors.

If Iran does anything to stop the flow of oil within the Strait of Hormuz, they will be hit harder than ever.“

Caine added that they’re looking at a range of options if tasked with escorting ships through the Strait of Hormuz.

• GBP/JPY trades near a one-month high as the US-Iran conflict pressures the Japanese Yen.
• Energy supply risks through the Strait of Hormuz keep Oil markets volatile.
• Markets scale back Bank of England rate-cut bets, offering modest support to the British Pound.

GBP/JPY trades higher on Tuesday as the ongoing US-Iran conflict pressures the Japanese Yen (JPY) amid fears that disruptions in the Strait of Hormuz could threaten energy supplies to Japan, which relies heavily on imported Oil.

At the time of writing, GBP/JPY trades around 212.25, hovering near a one-month high.

Japan relies on the Middle East for about 95% of its crude oil imports, with roughly 70% passing through the Strait of Hormuz. Any prolonged disruption or geopolitical tensions in the region could weigh on Japan’s economic growth.

The ongoing supply disruptions have embedded a geopolitical risk premium in Oil prices. However, prices dropped sharply on Monday — with WTI and Brent falling 5.84% and 3.69%, respectively — after US President Donald Trump said, “I think the war is very complete, pretty much.”

Meanwhile, global leaders have stepped in to calm market fears. G7 countries are discussing a coordinated release of oil reserves through the International Energy Agency (IEA).

Japan’s Trade Minister Akazawa said the country backs the IEA’s plan for a coordinated release of oil reserves. G7 Energy Ministers are also scheduled to hold a meeting later on Tuesday.

Still, Oil prices remain elevated as the US-Iran conflict expands with airstrikes across the Middle East. This has revived fears of global inflation, complicating the monetary policy path for major central banks.

The British Pound (GBP) is drawing modest support as traders scale back expectations for a Bank of England (BoE) interest rate cut in March. Earlier, markets had priced in roughly an 80% probability of a rate cut, while expectations are also growing that the Bank of Japan (BoJ) could delay further rate hikes.

On the data front, Japan’s Gross Domestic Product (GDP) grew 0.3% QoQ in Q4, in line with expectations and up from 0.1% in the previous quarter, while annualized GDP rose to 1.3% from 0.3%, beating the 1.2% forecast.

Meanwhile, in the UK, BRC Like-for-Like Retail Sales rose 0.7% YoY in February, slowing from 2.4% in the previous month and falling short of the 2.3% forecast.

Commerzbank’s FX & Commodity Analyst Volkmar Baur highlights robust Chinese imports of iron ore and copper ore, pointing to rising domestic copper production despite negative treatment charges. At the same time, the Iran-related blockage of sulphur exports from the Gulf threatens sulphuric acid availability in Congo, potentially disrupting copper ore mining that already accounts for 14% of global output.

Chinese ore inflows versus Congo constraints

"Chinese metal imports got off to a mixed start this year. Iron ore imports once again bucked the downward trend in steel production, rising 10% year-on-year in January/February."

"Imports of copper ore and concentrates were also up 4.9% on the previous year, although at around 2.5 million tons per month, the level was only slightly below that of previous months. Imports are normally lower at the beginning of the year than in the rest of the year due to the Chinese New Year celebrations."

"In contrast, imports of raw copper and copper products fell by 16% compared to the previous year and, at around 350 thousand tons per month, were also significantly below the level of recent months."

"Although production figures will not be reported until next week, imports indicate that copper production in China continues to rise. This is despite the fact that treatment and refinery charges remained negative in February, meaning that copper smelters have to pay mines a premium for the right to refine the copper."

"As the Gulf region is a major producer of sulphur, which is currently unable to reach world markets due to its location on the Strait of Hormuz, there could be production problems for copper ore in the Congo in the coming weeks."

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

National Bank of Canada’s (NBC) Tim Parsons and Taylor Schleich note that volatility in Bank of Canada (BoC) expectations has risen with the Iran conflict, with markets briefly pricing 2026 hikes instead of cuts. They still expect the Bank to stay on hold through 2026, looking through higher Oil-driven gasoline prices as long as Canadian CPI remains within the 1–3% control band.

BoC seen on hold despite war swings

"Volatility in Bank of Canada rate expectations picked up in March, driven by the conflict in Iran."

"Just two weeks ago, investors were contemplating potential BoC rate cuts this year but quickly OIS markets saw hikes as more likely."

"Ultimately, we still expect the Bank to remain sidelined all year, even if oil prices stay elevated."

"We see policymakers looking through a gas price related bump in headline inflation as long as CPI remains in or near the 1-3% control band."

"Along with uninspired growth and lingering slack in the labour market, we don’t think policymakers will be in a rush to hike."

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

Brown Brothers Harriman's (BBH) Elias Haddad reports AUD/USD has broken above 0.7100 with momentum toward 0.7150, as Australian sentiment data leave Reserve Bank of Australia expectations largely unchanged. Despite some softening in employment indicators, Haddad believes the RBA can implement a second consecutive rate hike on March 17, supported by internal models showing a positive output gap and tighter capacity constraints.

Australian Dollar supported by RBA outlook

"AUD/USD rallied above 0.7100, with momentum building toward the mid-February high around 0.7150."

"Australia’s latest business and consumer sentiment indexes won’t change the dial on RBA rate hike expectations, though the employment readings flash some red flags. The NAB business employment conditions index fell 2pts to +3 in February, consistent with a rising unemployment rate. "

"Meanwhile, the Westpac–MI consumer sentiment unemployment expectations index rose 3.8% to 134.7 in March, above the long run average of 129.2, suggesting consumers were less confident about the labor market outlook."

"We think the RBA can deliver a back-to-back rate hike next week because all the RBA’s internal models show a positive output gap consistent with tighter capacity constraints."

"The RBA next policy rate decision is on March 17, and cash rate futures imply 55% odds of a 25bps increase to 4.10%."

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

Deutsche Bank strategists Shreyas Gopal and Sanjay Raja note that UK front-end rates have seen the largest hawkish repricing among G10 central banks, removing earlier dovish expectations for the Bank of England. They argue this shift, together with short-covering, has supported the Pound recently, but warn that lower energy prices and a reversal in front-end rates could unwind this support.

BoE repricing underpins short term Pound

"At the end of last month the Bank of England was priced comparatively dovishly to peers both in absolute terms (over two full cuts priced) and relative to the spot real rate, as measured by policy rate minus the six-month annualised change in core CPI."

"As of the time of writing, however, there's now just over 10bps of cuts priced for the entire year."

"Away from the likely large impact of position unwinds, the best macro explanation is that fears over inflation expectations staying sticky could prevent the BoE from looking through the energy shock and continuing to cut."

"From a currency perspective, the terms of trade impact has been the dominant driver of relative performance, but the sheer magnitude of the UK repricing vs peers has likely combined with an unwind of short positioning to support the pound in the short term."

"A continued fall in energy prices and reversal in front-end rates could in turn see that source of support also reverse."

(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 notes that money markets scale back expectations for European Central Bank tightening. Comments from ECB officials stress calm and warn against overreacting to Iran, even as one policymaker sees higher probability of a rate hike, with swaps now pricing fewer basis points of hikes by year-end.

Energy relief tempers ECB hike pricing

"In the meantime, the money markets have retreated from bets on further tightening, as energy prices tumbled on expectations that the Iran war may end sooner than feared."

"Swaps are now pricing in around 22bp of ECB hikes by year-end, down from 33bp on Monday, and imply less than a 50% chance of a June increase."

"ECB Governing Council member Gediminas Šimkus has said it is “important to stay calm” and that policymakers “shouldn’t overreact to the situation in Iran,” warning that a deeper crisis could have implications for prices and growth."

"Meanwhile Georg Muller said that the “probability of a rate hike has gone up of late” but that the ECB “shouldn’t rush into any decisions.”"

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