Forex News

Scotiabank strategists Shaun Osborne and Eric Theoret note the Pound is underperforming against the Dollar, hurt by risk sentiment and a surprise contraction in UK industrial production. The Bank of England faces a difficult policy backdrop as markets shift from dovish expectations to pricing a possible hike by September. Technically, GBP/USD is in a notable bear run with limited support until the 1.30–1.32 area.

Pound underperforms with limited support

"The pound is weak, down nearly 0.6% vs. the USD as it underperforms all of the G10 currencies with the exception of NZD."

"Sentiment is dominating but fundamentals are also delivering added weakness with industrial production delivering an unexpected contraction in January as the better trade balance figures were flattered by an unexpectedly deep contraction in imports."

"The BoE’s challenge is considerable as it seeks to determine the appropriate path for policy, where markets have fully erased their dovish pricing with a drift into tightening and a 50/50 chance of a 25bps hike by September."

"GBP/USD short-term technicals bearish - the latest bear run has been notable, threatening a clear break of the March 3 low in the mid-1.32s."

"We note the absence of any meaningful support between current spot and the 1.30/1.32 range."

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

• Consumer confidence eased a tad in early March.
• One-year inflation expectation held steady at 3.4%.

American consumer confidence deflated in early March, as households grew more pessimistic about current conditions and the broader economic outlook, according to preliminary data from the University of Michigan.

The closely watched Consumer Sentiment Index receded to 55.5 from 56.6 in the previous month, surpassing economists’ expectations (55) and signalling some weakening in public confidence. 

Furthermore, the Current Conditions index ticked higher to 57.8 from 56.6, while the Expectations gauge dropped to 54.1 from 56.6, highlighting a downbeat scenario for the months ahead.

Inflation expectations, meanwhile, came in mixed: The one-year outlook held steady at 3.4%, and the five-year forecast eased to 3.2% from 3.3%.

Market reaction

The US Dollar remains well bid, adding to the ongoing move higher and sending the US Dollar Index (DXY) back above the key 100.00 hurdle, or multi-month highs.

Commerzbank’s commodity team, including Barbara Lambrecht and colleagues, highlights that the Iran war has triggered the largest oil supply outages ever, with the IEA estimating losses of at least 8 million barrels per day. A record 400 million barrel reserve release only partly offsets this and is seen as temporary. As long as the conflict persists, Brent and broader oil prices are expected to stay well supported.

Record outages keep Brent elevated

"The IEA estimates production losses in March at an average of 8 million barrels per day. These are the highest losses ever recorded. At just under 99 million barrels, global daily supply is at its lowest since the first quarter of 2022, when the war in Ukraine led to short-term losses in Russian oil production."

"The industrialised countries belonging to the IEA have announced the release of a record 400 million barrels of oil from emergency reserves in order to calm the oil market. Theoretically, this amount would cover the loss of oil supplies through the Strait of Hormuz for about a month. Spread over a period of two months, a supply gap of around 7 million barrels per day would remain if the strait remains completely closed."

"The focus remains on the conflict in Iran. Even if the historically largest release of oil reserves compensates for production losses in the short term, this is only a temporary solution. After all, it is offset by the largest outages on the oil market ever seen."

"The US Energy Information Administration (EIA), on the other hand, is more optimistic in the medium term: the significant rise in oil prices is likely to lead to higher US crude oil production, albeit with a delay of several months. For this year, the EIA expects production levels to remain at 13.6 million barrels per day. Next year, production is expected to rise to 13.8 million barrels per day."

"As long as there is no end in sight to the war, prices will remain well supported."

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

Standard Chartered’s Chong Hoon Park and Nicholas Chia expect the Bank of Japan to keep its policy rate at 0.75% on 19 March, with a cautious stance due to uneven Japanese growth and higher Oil prices. They see the path of least resistance for USD/JPY as higher, potentially re-testing 162, supported by positive seasonality and limited Ministry of Finance jawboning.

BoJ caution and Oil support stronger Dollar

"We expect the BoJ to keep the policy rate unchanged at 0.75% at its upcoming 19 March meeting. Policy makers appear focused on confirming that wage increases translate into stronger consumption before proceeding with further normalisation amid the oil price shock."

"Our base case remains for the BoJ to hike rates in Q3, likely at the July meeting. We maintain our terminal BoJ rate projection at 1%, although the risk is likely skewed to the upside (i.e. the BoJ hikes more than expected)."

"We think the path of least resistance for USD/JPY is higher, potentially testing the highs of 162 – which last prompted FX intervention by the Finance Ministry in July 2024 – amid higher-for-longer oil prices in the near term."

"Recent verbal intervention has been limited in intensity and magnitude, which may signal its unwillingness to lean against the market amid broad-based USD strength."

"USD/JPY seasonality typically turns positive in the latter half of March on window-dressing flows as well."

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

Rabobank’s FX Strategy team has lowered its short-term EUR/USD projections, citing prolonged disruption in the Strait of Hormuz and higher Oil and gas prices. The bank now expects weaker Euro performance versus the Dollar over 1–3 months, while keeping medium-term EUR/USD forecasts unchanged for now but under review as energy and geopolitical risks evolve.

Rabobank trims near-term Euro forecasts

"For some months Rabobank’s EUR/USD forecasts have been positioned below the market consensus and close to the bottom end of the range of market projections. Despite the USD positive implications of the Middle East conflict, this reduced the urgency to re-evaluate our forecasts immediately. However, it has become very clear that shipping through the Strait of Hormuz could be affected for a while."

"We have therefore reduced our EUR/USD forecasts on a 1- and 3-month view to 1.14 and 1.15 respectively from 1.16..."

"For now we have left our medium-term forecasts unchanged, though these will remain under review."

"The EUR is close to the bottom of the performance table, which is likely a function of the market maintaining long EUR positions for some months and the deterioration of the Eurozone’s terms of trade given its stance as a net energy importer."

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

• EUR/USD recovers slightly after hitting a seven-month low near 1.1433.
• Sticky US inflation and elevated Oil prices reinforce expectations of higher-for-longer Fed rates.
• Oil supply risks weigh on the Euro despite ECB tightening bets.

The Euro (EUR) trims part of its earlier losses against the US Dollar (USD) on Friday as traders digest the latest US economic data. At the time of writing, EUR/USD is trading around 1.1472 after touching an intraday low near 1.1433, its weakest level since August 2025.

The US Personal Consumption Expenditures (PCE) Price Index rose 0.3% MoM in January, in line with market expectations and unchanged from December. On an annual basis, the PCE Price Index increased 2.8% YoY, slightly below the 2.9% forecast and the previous reading of 2.9%.

The core PCE Price Index, the Federal Reserve’s (Fed) preferred inflation gauge, rose 0.4% MoM in January, matching both market expectations and the pace recorded in December.

On an annual basis, Core PCE increased 3% YoY, coming in below the 3.1% forecast and unchanged from December.

The data suggests price pressures remain sticky, and renewed inflation concerns driven by rising Oil prices reinforce the view that the Fed may keep interest rates higher for longer.

Meanwhile, other US economic indicators pointed to signs of moderating activity. The second estimate of US Gross Domestic Product (GDP) showed the economy expanding at an annualized rate of 0.7% in the fourth quarter, missing the 1.4% forecast and revised down from the previous estimate of 1.4%.

US Durable Goods Orders fell 1.4% in January, following a revised 0.9% decline in the previous month (revised from -1.4%). Personal Income rose 0.4% MoM, slightly below the 0.5% forecast but higher than the 0.3% increase recorded in December. Personal Spending also increased 0.4%, beating expectations of 0.3% and matching the previous reading.

In reaction to the data, the US Dollar eased somewhat, though the downside remains limited as cautious market sentiment driven by escalating tensions in the Middle East continues to support the Greenback. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 100, its highest level since November 2025.

At the same time, the conflict is fueling inflation concerns as Oil prices remain elevated, prompting traders to trim Fed rate-cut bets and providing additional support to the US Dollar. While traders have also fully priced in a European Central Bank (ECB) rate hike by July, the Euro has failed to draw meaningful support as the risk of Oil supply disruptions weighs on the economic outlook for Europe, a major net importer of energy.

OCBC strategists Sim Moh Siong and Christopher Wong highlight that Brent’s move above USD100/bbl and rising Hormuz disruption risk raise the odds of a durable energy shock, with markets bracing for stagflation and a stronger Dollar. They warn that a prolonged shock could sharply lift FX volatility and weigh on energy-importing Europe and Asia through 2026.

Brent surge raises stagflation concerns

"Crude oil has climbed back above USD100/bbl as Iran escalates attacks on oil and transport infrastructure across the Middle East, raising the odds of a prolonged disruption at the Strait of Hormuz. Persistently elevated prices are stoking concerns that the conflict could trigger a more durable—and not merely temporary—energy shock. That would reshape how markets assess inflation and growth risks."

"Higher oil and rising risk aversion supported the USD overnight, aided by the greenback’s haven appeal and the US’s relative insulation as a large energy exporter. USD gains have been orderly, helped by interest-rate markets aligning around central banks – across not just the Fed but also ECB and BoE -- leaning more toward inflation risks than growth. A short-lived conflict and rapid restoration of oil flows would justify today’s muted FX reaction."

"But if the energy shock endures, FX volatility is likely to rise sharply, especially as prolonged high prices become increasingly growth-negative for energy-importing Europe and Asia."

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

TD Securities, led by Robert Both and colleagues, expects the Bank of Canada to leave the policy rate at 2.25% in March. The statement is projected to stay cautious, balancing softer Canadian growth and moderating core inflation against upside inflation risks from higher Oil prices linked to the Iranian conflict. Guidance is seen keeping all options open on future rate moves.

BoC seen on cautious steady hold

"We look for the Bank of Canada to hold rates unchanged at 2.25% in its March policy decision, where the Bank faces two contrasting views of the world. In one, the domestic outlook has seen a mild deterioration since the January MPR, with softer Q4 GDP/Q1 tracking and the recent moderation across the Bank's preferred core inflation measures. However, the other viewpoint is one of renewed geopolitical instability and the risk of sharply higher energy prices, with knock-on effects to headline inflation and domestic growth."

"We believe the path of least resistance is for the Bank to maintain its recent messaging while acknowledging new risks from the Iranian conflict. The January policy statement already leaned heavily into heightened uncertainty, more so around US trade policy than geopolitics, but the current situation in the Middle East will introduce even more uncertainty around the previous outlook. However, the implications of the current conflict are more one-sided; if sustained, this environment will introduce substantial upside risk to the Bank's inflation forecast, while the positive terms of trade shock helps offset the impact of ongoing trade uncertainty on growth."

"We look for the Bank's guidance to repeat that the current policy rate remains appropriate to help the economy through a period of structural adjustment, while the opening statement to Governor Macklem's press conference repeats that it remains "difficult to predict the timing or direction of the next change in the policy rate." Rate cuts become a more challenging proposition in an environment of sustained pressure on global energy prices, but we think it's too early for the Bank of Canada to take cuts off the table, with the $38 intraday decline for WTI crude on March 9th illustrating how quickly conditions can change."

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