Forex News
Scotiabank analysts Shaun Osborne and Eric Theoret note that USD/JPY is up modestly, with the Japanese Yen soft versus the US Dollar but outperforming most G10 currencies except the Canadian Dollar. The currency is drawing some haven support and appears underpinned by verbal intervention from Japan’s Ministry of Finance. The latest USD/JPY advance has cleared early February election highs, leaving little resistance before the mid‑159s.
Yen steadies on haven flows and MoF rhetoric
"The yen is soft, down a modest 0.3% vs. the USD while performing relatively well against all of the G10 currencies with the exception of the CAD."
"The yen’s relative gains are important, reflecting (some) lingering haven-related strength despite the recent shift in the currency’s relationship to risk more broadly."
"The yen’s relative performance also likely reflects verbal intervention from Japan’s Minister of Finance Katayama who stated that the gov’t was ‘monitoring’ financial markets with ‘utmost vigilance’, language that is typically used as a warning to markets in order to mitigate disorderly conditions with the threat of central bank action."
"For USDJPY, the latest gains have broken the early Feb election highs, offering nothing ahead of local range high in the mid 159s."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Deutsche Bank’s Chief UK Economist Sanjay Raja describes the UK Spring Statement as largely uneventful, with only a handful of new measures and around GBP 6bn in extra borrowing by 2030/31. He notes a marginally better borrowing outlook and higher fiscal headroom, but warns that recent events, energy support demands and defence spending pressures could test tight spending plans by the Autumn Budget.
Spring Statement seen as fiscal non-event
"As expected, today's Spring Statement was largely a non-event. There were no big fireworks. New policy announcements were contained to already announced measures."
"After delivering 75 policy measures in the autumn, Chancellor Reeves stuck to her commitment to avoid any new major policy measures. In total, spending decisions taken in the Spring Statement were projected to add up to GBP 6bn in borrowing by 2030/31."
"As a result, borrowing is expected to track lower over every single year of the forecast horizon beyond 2026/27 (compared to the Autumn Budget), driven primarily by lower net debt interest payments and non-interest receipts. In even better news, public sector net debt is expected to be around GBP 22bn lower per year across the OBR's (Office for Budget Responsibility) five-year forecast horizon."
"On her primary headroom, the Chancellor raised her fiscal buffer to GBP 23.6bn in 2029/30. On her secondary rule, the Chancellor's headroom picked up to just over GBP 27bn."
"Based on current market conditions, higher inflation and weaker spending would dominate near-term projections, leaving the Chancellor with GBP 5bn less in headroom. Calls for support on energy prices will only increase from here, alongside calls to ramp up defence spending. Tight spending envelopes will also be called into question. "
"While the Chancellor may have built up a little bit more of a buffer over the last two fiscal events, pressure to spend some of her fiscal space will likely come to a head in the Autumn Budget."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Nomura analysts argue that the conflict-driven risk environment is likely to intensify appreciation pressure on the Swiss Franc. With inflation very low and the SNB policy rate at 0.00%, they see the central bank more inclined to intervene in FX markets to curb CHF strength rather than resort to a return to negative rates.
Franc strength and SNB response
"In the rest of Europe, currency appreciation pressures do not change our prior view for Norges Bank and the SNB, though we think the SNB is likely to intervene with FX purchases if there is further significant CHF appreciation."
"The risk environment following the start of the conflict adds to the likelihood of further appreciation pressures on CHF."
"With the SNB policy rate at 0.00%, the SNB’s main tools to prevent deflation as a result of further CHF appreciation are a negative policy rate or FX intervention."
"SNB Chairman Schlegel has been clear that the bar for a negative policy rate is high."
"Furthermore, the SNB said in a statement today (March 2) that “in view of international developments, we are increasingly prepared to intervene in the foreign exchange market”. We therefore view FX intervention to stem CHF strength as more likely than another policy rate cut."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- EUR/GBP trades slightly lower as investors reassess central bank policy outlook.
- Rising Oil prices linked to the US-Iran conflict fuel fresh global inflation concerns.
- Stronger-than-expected Eurozone inflation data offers limited support to the Euro.
The Euro (EUR) trades under mild pressure against the British Pound (GBP) on Tuesday as traders reassess the monetary policy outlook for major central banks amid inflation concerns tied to higher Oil prices driven by the US-Iran conflict. EUR/GBP is trading near 0.8710 at the time of writing, retreating from the daily high around 0.8739.
Markets are increasingly pricing in the risk of prolonged supply disruptions through the Strait of Hormuz, a key shipping route that accounts for nearly 20% of global Oil flows. Concerns escalated after an adviser to Iran’s Islamic Revolutionary Guard Corps said on Monday that Iran “will set fire to any ship attempting to pass through the Strait.”
In reaction, traders have scaled back expectations for a Bank of England (BoE) interest rate cut at the March meeting, with markets now pricing less than a 50% probability, Bloomberg reported on Monday.
The repricing is lending modest support to the Pound. However, Sterling lacks strong follow-through buying as political uncertainty in the United Kingdom persists amid renewed scrutiny over Prime Minister Keir Starmer’s leadership.
Meanwhile, stronger-than-expected inflation data offered little support to the Euro. Preliminary data released by Eurostat showed that inflation in the Eurozone picked up in February. The Core Harmonized Index of Consumer Prices (HICP), which excludes volatile food and energy prices, rose 0.8% MoM, rebounding from a 1.1% decline in January.
On an annual basis, core inflation accelerated to 2.4%, beating market expectations of 2.2%. Meanwhile, the headline HICP increased 0.7% MoM after falling 0.6% in the previous month, while the annual rate rose to 1.9%, above the 1.7% forecast.
European Central Bank (ECB) officials have also flagged the risks stemming from the US–Iran conflict. ECB policymaker Yannis Stournaras said the central bank is closely monitoring developments, adding that there is “no rush to change policy,” while warning that inflation could face upward pressure if the conflict persists.
Separately, ECB policymaker Francois Villeroy de Galhau cautioned against speculating on the next policy move, saying it would be “a mistake to predict rate moves in a hurry.”
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
- Gold eases on Tuesday as the US Dollar climbs and Treasury yields rise.
- Middle East tensions linked to the US-Iran conflict keep safe-haven demand in focus.
- Technically, XAU/USD turns bearish after failing to sustain gains above $5,400.
Gold (XAU/USD) trades with a negative bias on Tuesday as a stronger US Dollar (USD) and rising US Treasury yields weigh on the non-yielding metal, even as geopolitical tensions surrounding the US-Iran conflict keep investors cautious.
At the time of writing, XAU/USD is trading around $5,170, somewhat stabilizing after briefly sliding below the $5,100 mark earlier in the European session, though it remains down nearly 3%.
US Dollar climbs above 99.00 mark, Treasury yields extend gains
A stronger Greenback makes Dollar-denominated Gold more expensive for overseas buyers. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, climbs above the 99.00 mark to its highest level in over a month. Meanwhile, US Treasury yields continue to rise, with the benchmark 10-year yield gaining nearly 17 basis points (bps) over the past two days.
Despite the recent pullback in Gold prices, the downside remains limited amid a risk-averse environment. Markets are pricing in the possibility of a prolonged conflict in the Middle East after the United States and Israel carried out joint strikes on Iran over the weekend, with Tehran responding by targeting US military bases across several Gulf nations.
Late Monday, two drones struck the US Embassy in Riyadh. US President Donald Trump warned that retaliation could follow, telling NewsNation, “you’ll find out soon,” when asked about Washington’s response.
Oil-driven inflation risks temper expectations for Fed interest rate cuts
Meanwhile, the lack of strong upside momentum in Gold suggests investors remain cautious about the broader economic impact of the conflict. The geopolitical risk premium embedded in Oil prices has raised concerns about higher inflation, which could potentially affect expectations for Federal Reserve (Fed) interest rate cuts.
According to the CME FedWatch Tool, markets are fully pricing in the Fed to keep interest rates unchanged at the March and April meetings. The odds of a 25-basis-point rate cut in June have fallen to 28.1%, down from 42.8% a week ago.
Looking ahead, the US economic calendar is relatively light on Tuesday, though several Fed officials are due to speak later in the American session.
Technical analysis: XAU/USD weakens after failing to sustain gains above $5,400
The near-term outlook for Gold turns bearish after buyers failed to sustain gains above $5,400. Price action on the 4-hour chart is forming a bearish flag pattern, signaling the possibility of further downside if support levels fail to hold.
The 100-period Simple Moving Average (SMA) near $5,093 aligns closely with the lower boundary of the flag, making it an important immediate support zone. A decisive break below this level could accelerate selling pressure and expose the next downside targets at $4,850, followed by $4,650.
On the upside, bulls would need to decisively reclaim and break above the $5,400-$5,500 resistance zone to invalidate the bearish structure and revive the broader uptrend.
Momentum indicators also point to growing downside pressure. The Relative Strength Index (RSI) has dropped sharply from overbought levels above 70 to around 39, indicating fading bullish momentum.
Meanwhile, the Moving Average Convergence Divergence (MACD) indicator has turned negative, with the MACD line falling below the signal line and the histogram expanding into negative territory. At the same time, the Average True Range (ATR) is rising, highlighting increasing volatility as selling pressure builds.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Commerzbank’s Dr. Vincent Stamer notes Euro area inflation rose to 1.9% in February, with core inflation at 2.4%, both above expectations. The bank links part of the increase to higher energy prices following the conflict in Iran and sees Euro area inflation potentially reaching around 2.4% in Q2 2026, or close to 3% if Brent stabilizes near USD 100.
Oil-driven risks to Euro inflation
"Inflation in the euro area rose to 1.9% in February from 1.7% in January. Core inflation, excluding energy, food, alcohol and tobacco, also rose by two-tenths to 2.4%. Economists had expected inflation to remain unchanged. In some respects, the war in Iran is already casting its shadow: energy prices had already risen in February due to increased tensions."
"With the start of military strikes by the US and Israel against Iran, the price of Brent crude oil also jumped noticeably to over $80 per barrel. Initially, the rise in oil prices is likely to continue to affect gasoline and heating oil prices – around two-thirds of the inflationary effects in the first three months are due to direct price increases for fuels and other energy prices. In the slightly longer term, however, the core rate – i.e., inflation excluding volatile food and energy prices – is also likely to rise due to indirect effects."
"At the same time, crude oil futures indicate that market participants expect oil prices to consolidate by the end of the year. Our assumption for the course of the conflict is also that it will not last for many months. Based on this assumption, inflation in the euro area could rise to around 2.4% in the second quarter."
"If, on the other hand, the conflict continues to escalate and the oil price settles permanently at USD 100, inflation could be around 3% for the rest of this year."
"If the war in Iran continues, inflation in the euro area is likely to exceed the ECB's expectations. Nevertheless, we do not anticipate interest rate hikes by the ECB."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
ING’s Warren Patterson and Ewa Manthey note Brent rallied sharply after Middle East tensions, with the benchmark settling higher but off intraday peaks as traders reassessed disruption risks. They highlight concerns over flows through the Strait of Hormuz, potential attacks on regional energy infrastructure, and pronounced tightness in the prompt market reflected in widening Brent timespreads.
Brent reacts to Middle East tensions
"The market continues to digest the risk of escalation in the Middle East. While there are concerns about oil flows through the Strait of Hormuz, a greater risk to the market would be Iran targeting additional energy infrastructure in the region."
"Oil price movements have been fairly modest, given the amount of supply at risk and uncertainty about how long disruptions could persist. Part of the explanation: the market had already been pricing in a fairly large risk premium in the lead-up to these attacks. Also, the market appears to be pricing in a relatively short-lived disruption to oil flows through the Strait of Hormuz, which the large surplus markets expect this year should be able to absorb."
"Clearly, supply disruptions leave significant tightness in the prompt market, as reflected in timespreads. The 12-month ICE Brent is surging from less than US$5/bbl to a little over US$9.50/bbl backwardation. The May/Jun spread surged towards a US$1.60/bbl backwardation."
"Secretary of State Marco Rubio said that the US will announce plans on Tuesday to mitigate higher energy costs. At the same time, though, there have been reports that the US has no immediate plan to release oil from its strategic petroleum reserve. The longer the Middle East disruptions last, the more likely we are to see coordinated emergency releases from several countries."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
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