Forex News

HSBC’s Willem Sels highlights that Oil remains the primary driver of global markets, with recent Brent swings between USD83 and USD120 underscoring extreme uncertainty. The report notes that Oil prices are likely to stay above pre-conflict levels, keeping inflation concerns elevated and influencing bonds, equities and currencies. Medium-term, lower valuations and reduced positioning may attract investors once Oil flows normalise.

Oil swings dominate global market dynamics

"Our analysis shows that oil remains the number one driver of markets, mattering more than the USD move or risk appetite."

"In just 24 hours, Brent crude oil traded anywhere between USD83/bbl and USD120/bbl, highlighting the extreme uncertainty."

"Markets were working through the consequences of a risk scenario of high-for-longer oil prices, which could hit growth and boost inflation."

"But oil will still remain higher than before the conflict, as we don't know when it will end, how ships will pass the Strait of Hormuz, and how much sanctioned oil could flow."

"For the medium term, we remain of the view that the reduction in concentrated positioning and the lower valuations will help bring back investors when oil starts to pass through the Strait of Hormuz again."

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

Commerzbank’s Thu Lan Nguyen reports that Gold has recovered as Trump’s signal of a possible end to the Iran war eased rate-hike fears. The bank argues that central banks are unlikely to react aggressively to temporary energy-driven inflation risks, given a weaker US labor market and political pressure on the Federal Reserve, leaving Gold well supported medium term.

War, rates and safe-haven demand

"Gold is regaining some ground after US President Trump signaled an imminent end to the war in Iran. This can be explained primarily by a decline in interest rate expectations, which had previously risen due to fears of inflationary consequences of increased energy prices. Since the start of the war, one interest rate cut by the US Federal Reserve by the end of the year has been priced out."

"In our view, these expectations were premature anyway. Even if the central banks have learned their lessons from 2022, when the energy price shock at the time led to a much stronger rise in inflation than expected, they are not necessarily likely to react much more quickly to inflationary risks."

"The US Federal Reserve is likely to take this into account, especially as it is already under massive political pressure to cut interest rates. For this reason, we consider gold prices to remain well supported over the medium term."

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

Societe Generale’s Kit Juckes highlights the resilience of the Australian Dollar despite higher Oil prices and Australia’s heavy reliance on imported petroleum. He notes that speculative AUD longs have not been unwound and that AUD/USD has barely slipped since late February. Juckes stresses that relative interest rates continue to move in AUD’s favour, supporting a strategy of staying long.

AUD holds firm despite Oil shock

"The Australian dollar has been resilient in the face of rising oil prices."

"Hence, despite being a major exporter of natural resources, including natural gas, the economy is vulnerable to a protracted spike in oil prices."

"Our reaction a week ago, was that the size of AUD speculative longs in the FX market and the country’s dependence on imported petroleum in particular, could trigger an AUD correction, even though we think it can reach higher levels in the coming months."

"It would seem that holders of long AUD positions have remained reluctant to part with one of their favourite trades."

"AUD/CAD has produced a positive return since the start of the US war with Iran, but a mere 0.06% fall in AUD/USD since the end of February is very impressive."

"...relative rates are still moving firmly in the AUD’s favour, proving more support today than when AUD/USD was at 0.76 in 2022."

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

Rabobank’s Senior FX Strategist Jane Foley notes that the Pound has outperformed since late February, while the Euro has lagged, with recent EUR/GBP gains largely tied to fading expectations of a March BoE rate cut and positioning effects. Rabobank still sees risk that EUR/GBP trends higher in coming months and even towards 0.89 by year-end, as UK-specific risks and energy-driven inflation concerns weigh on Sterling.

Rabobank flags renewed upside in EUR/GBP

"While we would ascribe the gains in EUR/GBP over the past week mostly to the loss of hope of a March BoE rate cut, it is likely that positioning has had an impact on how the current uncertainties are affecting various currencies. We continue to see risk that EUR/GBP will revert to a slow creep higher in the coming months."

"Against the backdrop of disappointing UK growth data last year, the BoE’s easing cycle and the risk of a leadership challenge to PM Starmer, CFTC data suggest that speculators have been maintaining short GBP positions for some time. By contrast the market has been long EUR since early spring last year. This will have been linked to the boost in optimism regarding the Eurozone growth outlook following the changes to Germany’s debt brake."

"In recent weeks, these long EUR positions have been pared with the market no doubt concerned about the impact of higher energy costs on the regions’ industrial output. Market expectations of ECB rate hikes into next year have also firmed up, though Rabobank doesn’t expect the ECB to be in any rush to alter policy settings."

"While it is likely that short-covering has offered GBP some support over the past week, we would expect this to run out of steam. The UK economy is still precariously positioned in between sticky inflation, high public debt, a current account deficit and (dependent on the duration of the energy price shock) a potentially still inadequate fiscal buffer."

"Faced with this possibility, we would expect the recent positive impact on GBP from position adjustment to run out of steam. We see risk of a move to EUR/GBP 0.89 towards year end."

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

Brown Brothers Harriman’s Elias Haddad notes that markets have sharply reduced the crude Oil war risk premium after comments from President Trump, triggering a pullback in the Dollar and a rally in global stocks and bonds. With narrowing rate differentials versus other major economies, BBH sees the Dollar poised to revisit the lower end of its June 2025 trading range.

Dollar softens with narrowing rate spreads

"Setting geopolitics aside, USD is poised to re-test the lower end of its range seen since June 2025, reflecting narrower rate differentials between the US and other major economies."

"Nevertheless, energy markets remain extremely headline-driven, with the safety of shipping through the Strait of Hormuz the primary barometer for global energy risk."

"Markets slashed the war risk premium in crude oil prices, sparking a USD pullback against most major currencies, and a rally in global stocks and bonds."

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

ING’s Chris Turner highlights that UK rate markets have seen one of the largest repricings from the energy shock, reflecting high UK inflation and a relatively hawkish Bank of England. While not constructive on Sterling overall, ING sees scope for the current EUR/GBP correction to extend toward the 0.8600/0.8615 area, which is expected to provide strong support.

Sterling lifted by aggressive BoE pricing

"As above, the sterling curve has seen one of the biggest repricings relating to this oil shock. That is probably a function of UK inflation already being well above target at 3% and the Bank of England having sufficient hawks to call time on the easing cycle."

"Clearly, the duration of the oil shock is going to have a big bearing on this debate. As to whether gilts come under pressure from government measures to limit the energy shock to consumers, the government has some time."

"Utility bills get priced over a February-May window and the government will be hoping that natural gas and electricity prices have turned lower well before energy caps are set and consumers receive their utility bills in July."

"We are not big fans of sterling, but given that both the eurozone and the UK are hit by the energy shock and that BoE monetary response could be greater, there is outside risk this EUR/GBP correction extends back to the 0.8600/8615 area again – which should prove strong support."

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

European Central Bank (ECB) economist Georg Muller said on Tuesday that “we shouldn't rush into any decision.”

Additional quotes

We need to see if the energy price surge is transitory or not.

The probability that the next move is a rate hike has increased.

European Central Bank (ECB) Governing Council member and head of Lithuania's central bank, Gediminas Simkus, commented on the bank’s monetary policy outlook in the face of the war in the Middle East.

Key quotes

Important to stay calm for next policy meeting, don't overreact.

Deeper crisis may have price and growth implications.

We need to take the next decision based on the best information on the day of the meeting.

Market reaction

EUR/USD is holding minor recovery gains near 1.1650 following these comments, up 0.12% on the day.