Forex News

Scotiabank strategists Shaun Osborne and Eric Theoret report EUR/USD has slipped slightly below yesterday’s low as Dollar strength persists. ECB data show moderating inflation expectations, while President Lagarde signaled caution on rate moves given energy-price risks. Technically, they see a soft undertone but maintain a mild upward bias from the mid-month 1.14 test, with support at 1.1500 and resistance near 1.1560.

Lagarde caution as key supports watched

"The EUR has found no respite from USD strength so far on the day, slipping marginally below yesterday’s low."

"ECB data revealed a moderation in Euro area inflation expectations in February—before Gulf hostilities commenced—but policymakers remain alert to the risks from rising energy prices."

"President Lagarde said the scale of the shock is probably beyond imagination at this point, suggesting that the central bank will not act precipitously on rates before it can fully assess developments."

"Spot retains a soft undertone but the mild upward bias established from the mid-month test of the 1.14 area remains intact."

"Support is 1.1500/05 intraday. Weakness below this channel base will target a retest (at least) of the 1.14 area. Resistance is 1.1560. "

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

ING’s Chris Turner notes that Banxico’s 25 bp rate cut to 6.75% came with largely unchanged inflation forecasts and a projection of a return to target in early 2027. He argues that easing policy in the current environment is risky and suggests the Peso remains vulnerable, with scope for USD/MXN to correct higher on negative Middle East news.

Rate cut questions Peso resilience

"Banxico mildly surprised the market by cutting the policy rate 25bp to 6.75% yesterday. Somewhat surprisingly, its inflation forecasts were little changed since February (just 0.1/0.2% modest increases for headline and core CPI year-on-year rates). And it still forecast inflation returning to target at 3.00% in early 2027."

"Cutting rates in the current environment is a little dangerous and does suggest that Banxico is slightly less concerned about currency weakness than many other emerging market central banks."

"We had felt earlier this year that Banxico would not want to see USD/MXN trading well under 17.00 again. As a big EM beast and a proxy hedge for the EM complex, we think the peso remains vulnerable."

"Some poor news out of the Middle East could now see USD/MXN correct back up to the 18.50/70 region."

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

• GBP/JPY steadies on Friday after early losses, as renewed intervention fears boosted demand for the Japanese Yen.
• Japan’s Finance Minister Katayama warns against speculative FX moves, signals readiness to act.
• Weak UK Retail Sales data offered limited support to the British Pound.

GBP/JPY trades flat on Friday after slipping earlier in the European session, as the Japanese Yen (JPY) strengthened amid rising intervention fears. The move comes as USD/JPY trades within striking distance of the 160.00 level, a key zone that previously prompted action from Japanese authorities.

At the time of writing, GBP/JPY is trading around 212.60, rebounding from an intraday low near 212.23.

Intervention fears intensified after Japan’s Finance Minister Satsuki Katayama said authorities are “monitoring market developments with high vigilance.” She flagged “speculative FX moves driven by Oil prices” and said a G7 finance ministers’ meeting will be held, stressing readiness to “take decisive steps on forex.”

Meanwhile, the Bank of Japan (BoJ) said Japan’s natural rate of interest is estimated in the range of -0.9% to 0.5%, compared with -1.0% to 0.5% previously, noting that the upward shift reflects an improvement in the country’s potential growth rate and stronger risk appetite among market participants.

Adding to the hawkish tone, former BoJ Governor Haruhiko Kuroda said the ongoing Iran war could accelerate the pace of rate hikes rather than delay them, adding that Japan is on a stable growth path, reducing the need for continued monetary easing. Kuroda also noted that there would be no issue with raising the policy rate three to four times through next year, potentially taking it to around 1.5%.

In the UK, Retail Sales data did little to support the British Pound, with monthly sales falling 0.4% in February, beating expectations for a 0.8% decline, following a 2% increase in January.

On an annual basis, Retail Sales rose 2.5%, slightly above forecasts of 2.1%, but eased from 4.8% previously. Meanwhile, Retail Sales excluding fuel also declined 0.4% MoM, beating expectations for a 0.8% drop, after a 2.2% increase in January, while the YoY figure came in at 3.4%, down from 5.9%.

Commerzbank’s Dr. Vincent Stamer updates Euro area inflation projections incorporating the Iran War and associated energy shock. The bank expects higher Oil and natural gas prices to push headline inflation above 3% in 2026 before easing back to the ECB’s 2% target by 2027. Core inflation is seen re-accelerating later as energy costs filter through.

Energy shock lifts Euro area inflation

"The Iran War is likely to drive up core inflation in the euro area – even if the war ends within the next two months. This is supported by forecasts of our quantitative model for euro area inflation. We combine these results with a detailed analysis of February’s inflation data and our scenario analysis for the Iran War to outline a likely path for inflation in the euro area."

"Given current developments, we expect headline inflation to return to the ECB’s 2% target by 2027."

"The war in Iran and the de facto closure of the Strait of Hormuz are driving up energy prices and lead to higher prices for oil products, natural gas, fertilizers, and logistical services in the euro area as well."

"In our baseline scenario, inflation rises slightly above 3% in the second quarter of 2026 and falls steadily to just under 2% by the second quarter of 2027. This baseline scenario forms the framework for our new inflation forecast."

"Following the delayed effect of energy prices on goods and services, the core rate rises again starting in October and then peaks at 2.4% in the first quarter of 2027."

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

Brown Brothers Harriman’s (BBH) Elias Haddad highlights that global risk sentiment is deteriorating as Oil rises, equities and bonds fall, and the Dollar strengthens. The bank argues that a persistent energy shock from the Iran war would trap central banks in restrictive policy and worsen government debt dynamics, allowing the Dollar to benefit mainly from elevated USD funding needs rather than classic safe-haven demand.

Dollar strength tied to funding stress

"Crude oil prices remain under upward pressure, global equity and bonds continue to slide, and USD is pushing higher against most currencies."

"The heightened likelihood of a more persistent energy shock raises financial stability risks because it traps central banks in restrictive policy and puts government debt on a more fragile and unsustainable path."

"As such, USD can continue to benefit driven by dollar funding needs, not safe haven flows."

"Demand for short-term USD funding tends to spike during periods of stress due to the dollar’s dominant role in the global financial system (trade invoicing, cross border lending, global bond issuance, FX reserves)."

"Dollar funding pressure shows up in a narrowing and more negative cross-currency basis, which is increasingly the case at present."

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

Halpenny stresses that the extension of Trump’s pause only on attacks against energy assets, combined with Iran’s limited tanker gestures, suggests the Strait of Hormuz will stay constrained. MUFG expects Brent crude Oil to drift higher, with a severe scenario of USD 120–160 per barrel raising the risk of a larger risk-off episode and increased global recession concerns.

Oil supply constraints and risk-off

"Given the pause until 6th April only includes attacks on energy assets, the conflict looks set to extend further and the longer the Strait of Hormuz remains closed the greater the energy supply problem will become."

"There was some gesture from Iran by letting ten tankers through but given the Strait of Hormuz is a key part of Iran’s leverage there seems little prospect of a more meaningful flow of traffic being allowed through any time soon."

"So crude oil prices look set to continue drifting higher which raises the prospect of a bigger episode of risk-off as global recession risks rise."

"In a more severe scenario of Brent crude oil trading in a range of USD 120-160pbl and equity markets taking a bigger hit, the DXY could advance closer to the 105-level (+7%-8% from pre-conflict level)."

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