Forex News

DBS Group Research economist Philip Wee argues that the US Dollar’s traditional safe-haven role is being undermined as it failed to benefit from risk aversion despite higher Oil prices and geopolitical tensions. He highlights weak US labour data, monetary policy divergence versus Europe and the UK, political instability in Washington, and rising US fiscal concerns as key headwinds for the Dollar.

Haven status challenged by multiple headwinds

"In a notable departure from trends after the Israel-US-Iran war broke out, the USD failed to capture haven flows last Friday (March 6) despite Brent crude oil prices surging above USD90/barrel amid the escalating conflict."

"The negative surprise in February’s US nonfarm payrolls (-92k actual vs. +55k consensus) broke the resilient US labour market narrative that underpinned the Fed’s extended pause."

"In contrast, markets erased expectations of two Bank of England rate cuts and priced in two European Central Bank rate hikes this year, reviving a trade on monetary divergence against the greenback."

"Collectively, these upheavals signal a state of flux within the executive branch, eroding the predictable governance that underpins the USD’s haven status."

"Hence, the USD could come under pressure if the narrative behind higher US Treasury yields shifts from inflation to fiscal sustainability concerns."

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

• Silver price recovers a majority of its early losses and rebounds to near $84.00.
• Higher US bond yields and the US Dollar are expected to remain a major drag on the Silver price.
• The Fed is unlikely to cut interest rates in the next three policy meetings.

Silver price (XAG/USD) claws back a majority of its early losses and recovers to near its opening price around $84.00 during the European trading session on Monday. The white metal is expected to remain under pressure as higher United States (US) Treasury yields due to strengthening market speculation that the Federal Reserve (Fed) will not cut interest rates in the near term have diminished the appeal of non-yielding assets, such as Silver.

10-year US Treasury yields are up almost 2% around 4.22% during the press time. Higher yields on interest-bearing assets diminish the appeal of non-yielding assets.

According to the CME FedWatch tool, traders expect the Fed to leave interest rates unchanged in the next three policy meetings in March, April, and June. For the July policy meeting, the odds of the Fed holding interest rates steady have increased to 46.7% from 39.3% seen on Friday.

Traders have pared significant dovish Fed bets amid surging oil prices, which have already prompted global consumer inflation expectations. Meanwhile, the US gasoline prices reached an average of $3.41 per gallon on Saturday, according to The New York Times (NYT).

In addition to receding dovish Fed expectations, rising US Dollar (USD) due to firm safe-haven trade amid the Middle East war has also weighed on the Silver price.

As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.5% higher to near 99.35.

Technically, a higher US Dollar makes the Silver price an unfavorable risk-reward bet for investors.

Silver technical analysis

XAG/USD trades slightly lower at around $83.90 at the press time. The near-term bias is neutral as spot trades close to the 20-day Exponential Moving Average (EMA), which has flattened near $84.75. Price action has been oscillating around this average for several sessions, signaling a lack of directional conviction after January’s sharp reversal from above $110.

The 14-day Relative Strength Index (RSI) wobbles inside the 40.00-60.00 zone, signaling a lack of strong buying pressure and favoring a defensive tone.

Nearest resistance emerges in the recent swing area around $90.00, where prior rebounds stalled. A daily close above $90.00 would be needed to ease the current downside bias and reopen the way toward the mid-$90s. On the downside, initial support sits near the recent $82.00 low, with a break exposing the $78.00 region as the next key floor. A sustained move below $78.00 would confirm a deeper corrective phase toward the mid-$70s zone.

(The technical analysis of this story was written with the help of an AI tool.)

(This story was corrected on March 9 at 12:50 GMT to say that price action is signaling a lack of directional conviction after January’s sharp reversal from above $110, not April's.)

(This story was corrected on March 9 at 12:50 GMT to say that the rising US Dollar due to firm safe-haven trade amid the Middle East war has also weighed on the Silver price, not the US Dollar.)

United Kingdom (UK) Prime Minister (PM) Keir Starmer said during European trading hours on Monday that the administration is in continuous talks with international partners about what more we can do to reduce the economic impact amid the ongoing war in the Middle East between the United States (US), Iran, and Israel.

Remarks

We've done a lot of work to put some resilience into our economy over the last 18 months.

Talking to international partners about what more we can do to reduce the economic impact.

The longer this conflict goes on, the more likely the potential for an impact for economy.

Finance Minister Reeves talking to BoE every day to get ahead of any ‘on energy' prices.

I don't see the energy price cap changing since it goes to June.

We do need to find a way to de-escalate the situation in Iran.

Deutsche Bank's Chief UK Economist Sanjay Raja outlines how the Bank of England and UK Government might respond to different energy-shock paths. Scenario 1 keeps two cuts to 3.25% and no major fiscal move, Scenario 2 still allows two cuts but more spaced with fuel-duty relief, while Scenario 3 delays easing, raises terminal to 3.5% and triggers broader fiscal support measures.

Rate cuts and fiscal levers by scenario

"The call for policy adjustments will grow. HMT will feel pressure to support households and cut inflation. And the Bank of England will grow more nervous the longer the energy shock lasts."

"In Scenario 1, we would expect our baseline of two rate cuts to come, with the next rate cut likely to come in April/June, followed by a (late) summer rate cut (in either July/Sep). Fiscal policy, we expect, will remain on the sidelines, given the speed in which the shock dissipates."

"In Scenario 2, we still think two rate cuts may be likely. But rate cuts are likely to be spaced further apart, with one likely in summer and another just around the turn of the year. Fiscal policy will most likely be deployed to shield households - particularly in the form of easing fuel duty increases (which is scheduled to rise from August)."

"In Scenario 3, where the energy crisis persists, we expect a two-pronged approach by Government. One, not only would the chances of a fuel duty free extension rise inexorably, but we think the Chancellor may begin to entertain the idea of temporary cut to fuel duty."

"How will the BoE react? We'd expect the next rate cut to come later in the year (Q4-26). And we would expect terminal rate expectations to rise - from 3.25% currently to 3.5%."

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

Eurozone Sentix Investor Confidence Index arrives at -3.1 in March from 4.2 in February.

The report shows that the sudden weakness in investors' morale is linked to the escalation of the Iran war, which is weighing on global energy markets. Attacks on energy infrastructure and disruptions to shipping in the Persian Gulf are weighing on sentiment. The sharp rise in oil prices and the associated economic uncertainty are having negative consequences from the investors' perspective.

Market reaction

There seems to be no immediate impact of the sentiment data on the Euro (EUR). As of writing, EUR/USD trades 0.5% lower to near 1.1550 amid weak market sentiment.

Rabobank strategists Molly Schwartz and Jane Foley report that EUR net long positions have declined for a third consecutive week, driven by increased shorts. They stress that the Euro lacks safe-haven status and remains vulnerable as an energy importer in the current crisis, despite limited direct exposure to the Strait of Hormuz. Markets are now pricing in two ECB rate hikes over a one-year horizon on perceived inflation risks.

Net longs fall as shorts increase

"EUR net long positions have fallen for the third week in a row, driven by a jump in short positions."

"Since the EUR’s brief history is associated with crisis, it has no safe haven links."

"In addition, the Eurozone’s stance as an energy importer leaves the EUR more vulnerable in the current crisis even though very little of its energy is sourced through the Strait of Hormuz."

"The market is pricing in two ECB rate hikes on a 1-year view on the back of perceived inflation risks."

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

Silver prices (XAG/USD) broadly unchanged on Monday, according to FXStreet data. Silver trades at $83.83 per troy ounce, broadly unchanged 0.08% from the $83.89 it cost on Friday.

Silver prices have increased by 17.93% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 60.96 on Monday, down from 61.43 on Friday.

(An automation tool was used in creating this post.)

National Bank of Canada (NBC) economists Alexandra Ducharme and Jocelyn Paquet interpret recent Bank of Canada communication as favouring policy flexibility in response to supply shocks. With the economy in excess supply and inflation modestly above target, they see a path to BoC rate cuts if growth weakens materially, but judge the most likely outcome as inflation near 2% and policy on hold through 2026, with little chance of cuts in upcoming meetings.

BoC seen on extended policy hold

"Today, the economy is in excess supply with inflation modestly above target, a situation that requires “flexibility”. In theory, there’s a path to BoC cuts from here if inflation runs only a bit above target, but the economic shock is material. Of course, the ‘easier’ path to further cuts is inflation falling and consistently running below target."

"To us, the most likely outcome is for inflation hovering around 2% and slack persisting but gradually being reduced. This should lead to stand pat policy this year. If our economic or growth assessment is wrong, the response will differ."

"But making this assessment will likely take time, which is why we see little chance of a rate cut in the next few meetings."

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

(This story was corrected on March 9 at 13:50 GMT to say that the acronym of the National Bank of Canada is NBC, not BoC.)

MUFG’s Senior Currency Analyst Lee Hardman notes that the surge in Oil prices linked to the Middle East conflict is reinforcing US Dollar strength, especially versus high-yielding emerging market currencies. He highlights that weaker US labour data would normally weigh on the Dollar, but the energy shock and hawkish repricing in rates are instead supporting USD within its 96.000–100.00 index range.

Oil-driven risk backdrop underpins Dollar

"The US dollar has continued to strengthen against other major currencies with the dollar index moving towards the top of the 96.000 to 100.00 trading range that has been in place since Q2 of last year."

"US dollar strength has been more evident against the high yielding emerging market currencies of the South African rand and Hungarian forint."

"Normally, the softer NFP report would have reinforced Fed rate cut expectations and weakened the US dollar in the absence the Middle East conflict."

"So far the US rate market has moved to push back both the timing and scale of further Fed rate cuts lifting US rates and the US dollar."

"Financial market conditions are becoming more challenging for carry trades triggering an unwind of popular positions with the FX market likely to become much more volatile the longer the conflict drags on."

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