Forex News

• GBP/JPY rises 0.24% despite Middle East tensions between the US and Iran.
• Bullish engulfing pattern and RSI rebound signal potential continuation higher.
• Break above 211.00 targets 212.12 and 213.82, while 210.00 guards downside.

GBP/JPY rises during the North American session on Monday, up by 0.24% after recovering from hitting daily lows of 209.10 amid risk aversion spurred by the Middle East conflict between the US and Iran. At the time of writing, the cross-pair trades at 210.98, about to overcome the 211.00 hurdle.

GBP/JPY Price Forecast: Technical outlook

The GBP/JPY pair began the week on a lower note, but as of writing, it is forming a ‘bullish engulfing’ candle chart pattern, which, if confirmed, could open the door for further gains.

Momentum shows that buyers remain in charge with the Relative Strength Index (RSI) bottoming around its 50-neutral line, aiming higher, an indication that bulls are stepping in.

A break above 211.00 clears the path for further gains, with the next key resistance level seen at the February 25 swing high of 212.12. If surpassed, GBP/JPY's next stop would be the February 10 high at 213.82, ahead of 214.00.

On the downside, if GBP/JPY extends its losses below 210.00, bring the day’s low of 209.35 into focus. On further weakness, the next demand zone would be 209.00 ahead of the 100-day Simple Moving Average (SMA) at 207.91

GBP/JPY Price Chart – Daily

• The SNB issued an unsolicited statement on Monday saying it is increasingly prepared to intervene in currency markets after the Iran crisis pushed EUR/CHF to an 11-year low near 0.9030.
• Swiss data disappointed on Monday, with January retail sales falling 1.1% versus a 2.7% expansion forecast and February's SVME PMI slipping to 47.4 against expectations of 50, ahead of Wednesday's CPI release.

The Swiss Franc (CHF) was the standout safe-haven performer on early Monday trading, rallying sharply against the Euro (EUR) and most major currencies as the US-Israeli military strikes on Iran triggered a broad flight to safety. EUR/CHF plunged to around 0.9030 in early Asian trade, its lowest since the Swiss National Bank (SNB) removed its Euro peg in 2015, before recovering to close near 0.9110 as the SNB's intervention warning took effect. Against the US Dollar, however, the Franc drastically underperformed : USD/CHF jumped 1.25% to settle close to 0.7780 as the Greenback's own safe-haven bid and yield advantage proved stronger. Monday's forex landscape showed the Franc losing ground across the major currencies board by the end of the American session.

The SNB's policy rate sits at 0% following its December hold, with inflation running near zero and the central bank forecasting just 0.3% average inflation for 2026. The combination of deflation risk and a surging currency puts the SNB in a difficult position; its Monday statement that it is "increasingly prepared" to intervene in foreign exchange markets was the strongest language since the Iran crisis began. Monday's Swiss data added to the challenge, with January real retail sales falling 1.1% year-on-year, far below the 2.7% consensus and a sharp reversal from December's 2.8% reading. February's SVME Purchasing Managers' Index (PMI) also missed expectations, printing at 47.4 against a forecast of 50 and down from January's 48.8, signaling a deeper contraction in Swiss manufacturing. Wednesday's February Consumer Price Index (CPI) release is the next key test, with the market expecting a 0.4% month-on-month increase and a -0.1% year-on-year reading that would push Switzerland into outright deflation.

USD/CHF daily chart

Technical Analysis

In the daily chart, USD/CHF trades at 0.7789. The pair holds a bearish near-term bias as price action remains well below the descending 50-day and 200-day exponential moving averages, which cap the upside and confirm a dominant downtrend. The recent rebound from the 0.76 area has eased immediate downside pressure, but the Stochastic oscillator turning higher from oversold territory points more to a corrective bounce within this broader bearish context than to a trend reversal.

Initial resistance emerges near 0.7830, where recent highs align with the 50-day EMA zone, followed by 0.7900 as the next hurdle if buyers extend the recovery. On the downside, support sits around 0.7730, guarding the path toward the recent trough near 0.7625, which is the key level bears would need to break to resume the prevailing downtrend. As long as price trades below 0.7900, rallies are vulnerable to selling pressure, keeping the broader bearish structure intact.

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

Here is what you need to know on Tuesday, March 3:

The United States, allied with Israel, struck Iran over the weekend, killing Iran’s Supreme Leader, Ayatollah Ali Khamenei. In retaliation, Iran launched missile and drone attacks targeting US military bases across several nations, with attacks from both parties still ongoing, fueling a geopolitical crisis.

The US Dollar Index (DXY) is trading near the 98.50 price region, surging during the American session to a five-week high and drawing attention away from its safe-haven peer, Gold, after the US-Israel conflict with Iran spikes investors' awareness. Manufacturing activity in the US expanded in February. The ISM Manufacturing PMI eased slightly to 52.4 from 52.6 in January, and the ISM Manufacturing Employment Index rose to 48.8 from 48.1, while the New Orders Index fell to 55.8 from 57.1.

EUR/USD is trading near the 1.1700 level, starting the week lower as investors went risk-off throughout the day. Austria’s central bank governor and European Central Bank (ECB) member Martin Kocher said that the ECB should be ready to move interest rates “in either direction” if uncertainty intensifies.

GBP/USD is trading near 1.3420, with the US Dollar gaining ground after falling to 1.3314 earlier in the day, its lowest level since December 17 Local elections in northern England weakened Prime Minister Keir Starmer's position within his Labour Party, raising speculation that he could be replaced.

USD/JPY is trading near the 157.30 price region, as the US Dollar wins the safe-haven buyoff.

AUD/USD is trading near the 0.7100 price zone, as the Australian dollar (AUD) opened with a gap at the beginning of the session, trimming most of its intraday losses amid a spike in commodity prices.

Gold is trading at $5,330, trimming half its intraday gains during the American session as the USD draws investors' attraction from its bright competitor.

What’s next in the docket:

Tuesday, March 3:

• Australian January Building Permits.
• Eurozone HICP.
• Italian February flash CPI.
• Australian AiG Industry Index.
• Australian February S&P Global Composite PMI.
• Australian February Global Services PMI.

Wednesday, March 4:

• Australian Q4 GDP.
• Chinese February NBS Manufacturing PMIs.
• Chinese February RatingDog Services PMI.
• Swiss February CPI.
• Spain Feb HCOB PMI.
• Germany Feb HCOB PMI.
• Eurozone Feb HCOB PMIs.
• Eurozone Jan PPIs.
• Italian Q4 GDP.
• US ADP Employment Change.
• US S&P Feb Global Composite PMI
• US Feb ISM Services Employment Index.
• US Feb ISM Services New Orders Index.
• US Feb ISM Services PMI.
• US Feb ISM Services Prices Paid.
• US Fed's Beige Book.

Thursday, March 5:

• Australian January Trade Balance.
• Eurozone January Retail Sales
• US February Challenger Job Cuts
• US Initial Jobless Claims
• US flash Nonfarm Productivity
• US flash Unit Labor Costs (Q4).

Friday, March 6:

• Germany January Factory Orders n.s.a.
• Eurozone Employment Change (Q4).
• Eurozone GDP (QoQ) (Q4).
• US February Average Hourly Earnings.
• US February Labor Force Participation Rate.
• US February Nonfarm Payrolls.
• US January Retail Sales.
• US February U6 Underemployment Rate.
• US February Unemployment Rate
• Canadian February Ivey PMIs.

• AUD/USD drops as remarks from Donald Trump escalate conflict rhetoric with Iran.
• ISM Prices Paid surge to a three-year high, tempering dovish bets on the Federal Reserve.
• Traders await comments from RBA's Michele Bullock amid heightened geopolitical uncertainty.

The Australian Dollar (AUD) registers losses versus the Greenback on Monday following over-the-weekend developments in the Middle East, which triggered a flight to safety, weighing on the AUD/USD pair. At the time of writing, it trades at 0.7083, down 0.37%.

Aussie weakens as Middle East escalation, firm US data fuel haven demand

Sentiment remains negative after the US President Donald Trump threatened that attacks on Iran are going to continue for four or five weeks. He added that the “big wave” in the war with Iran is yet to come.

Last weekend, an attack by US and Israeli forces eliminated Iran’s Ayatollah Ali Khamenei on Saturday. Since then, tensions escalated with Tehran retaliating against US bases within Gulf state countries and launching a missile against a UK airbase in Cyprus.

Aside from this, economic data in the US revealed that manufacturing activity steadied, despite retreating moderately. The ISM Manufacturing Purchasers Manager Index (PMI) in February came at 52.4, down from 52.6 a month ago but within expansion territory for the second consecutive month.

The ISM Prices Paid sub-component rose to its highest level in three and a half years, from 59 in January to 70.5, the highest since October 2022.

Given the backdrop of a resilient US economy and the jump in high Oil prices, money markets priced in a less dovish Federal Reserve throughout the year. Last Friday, money markets priced in 60 basis points of easing. At the time of writing, they expect the Fed to cut 48 basis points.

Consequently, the US Dollar remains bid as depicted by the US Dollar Index (DXY). The DXY, which measures the buck’s performance against a basket of six currencies, gains 0.83% up at 98.45, a tailwind for the AUD/USD pair.

Traders’ eyes on central bankers, Bullock from the RBA and Williams of the Fed

Later, the Reserve Bank of Australia (RBA) Governor Michele Bullock will cross the newswires on Tuesday and is expected to answer questions regarding heightened geopolitical tensions.

In the US, Regional Federal Reserve Presidents John Williams from New York and Jeffrey Schmid from Kansas City will grab the headlines amid the absence of US economic data releases.

AUD/USD Price Forecast: Technical outlook

In the daily chart, AUD/USD trades at 0.7102. The near-term bias is bullish as spot holds comfortably above the rising cluster of simple moving averages, which trail the market in the 0.6800 area and confirm an established uptrend rather than a late breakout. The RSI around 62 keeps momentum on the buyers’ side without showing overbought stress, while price continues to respect the two upward-sloping support trend lines from 0.6673 and 0.6897, reinforcing a pattern of higher lows.

Immediate support aligns with the inner rising trend line near 0.7090, with a break exposing the 0.7050 area and then firmer demand around 0.7000, where prior reaction lows converge. On the upside, initial resistance emerges at last week’s high near 0.7125, followed by the 0.7170 region, which coincides with the projected break level of the broader ascending trend line. A daily close above 0.7170 would open the way toward the 0.7250 zone, while failure to defend 0.7000 would weaken the bullish structure and shift focus back toward the mid-0.69s.

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

• NZD/USD weakens as US-Israel strikes on Iran trigger risk-off sentiment.
• RBNZ-Fed policy divergence keeps downside pressure limited.
• Technical setup shows a corrective pullback within a broader bullish structure.

NZD/USD trades under pressure on Monday as the New Zealand Dollar (NZD) weakens against the US Dollar (USD) amid escalating geopolitical tensions in the Middle East.

At the time of writing, the pair is trading around 0.5939 after dipping to 0.5916 earlier in the day, its lowest level since January 23.

Safe-haven demand for the Greenback strengthens after the United States (US) and Israel launched joint strikes on Iran over the weekend, weighing on risk-sensitive currencies such as the Kiwi.

However, the NZD struggles to attract strong selling pressure as investors weigh monetary policy divergence between the Reserve Bank of New Zealand and the Federal Reserve (Fed).

Markets widely expect the Reserve Bank of New Zealand (RBNZ) to keep interest rates unchanged through most of 2026, though some economists see the possibility of another rate hike later in the year if the economic recovery strengthens and inflation remains sticky.

In contrast, markets still price in roughly 50 bps of Fed interest rate cuts in the second half of the year, though resilient economic data, a stabilising labour market and persistent inflation pressure have prompted traders to trim expectations for near-term monetary policy easing.

On the daily chart, the near-term bias is slightly bearish to neutral. NZD/USD is trading below the 21-day SMA near 0.6005, while still holding above the rising 50-day SMA around 0.5907, which continues to provide support.

Momentum indicators suggest a modest cooling in bullish pressure. The Relative Strength Index (RSI) has retreated from earlier overbought levels and is currently hovering near 45, pointing to weakening upside momentum.

Meanwhile, the Moving Average Convergence Divergence (MACD) remains below its signal line and beneath the zero level, with the histogram turning negative, reinforcing the developing downside bias in the near term.

Despite the pullback, the broader outlook remains constructive, with price action forming a bullish flag-and-pole pattern. A break above the 0.6000 psychological level, which aligns with the upper boundary of the flag, could trigger fresh upside momentum toward 0.6100 and beyond.

On the downside, a break below the 50-day SMA or the lower boundary of the flag would weaken the bullish structure and shift the bias lower, exposing 0.5850 as the first support, followed by 0.5700.

• The US Dollar Index rallied sharply above 98.00 as risk aversion grips markets following US-Israeli strikes on Iran.
• Joint US-Israeli strikes on Iran killed Supreme Leader Khamenei and triggered retaliatory attacks across the Gulf, with Iran's IRGC effectively closing the Strait of Hormuz to shipping.

The US Dollar Index (DXY) jumped about 0.85% on Monday, surging through the 98.00 level to touch a session high around 98.75, its strongest reading in five weeks. The move marks a decisive breakout from the choppy 95.50 to 98.00 range that had contained price since late January, with Monday's strong bullish candle erasing the indecision that built up over the past two weeks of stalled rallies near 98.00.

Joint US-Israeli military strikes on Iran over the weekend under Operation Epic Fury sent shockwaves through global markets. The killing of Supreme Leader Ayatollah Ali Khamenei and Iran's retaliatory missile and drone attacks on US assets across the Gulf, including in the UAE, Qatar, Bahrain, and Saudi Arabia, triggered a broad flight to safety. The effective closure of the Strait of Hormuz, through which roughly 20% of global oil and gas supplies flow, has compounded the risk-off mood and sent crude prices sharply higher.

On the macro side, the Federal Reserve (Fed) held rates at 3.50% to 3.75% in January, and minutes from that meeting showed several participants discussing the possibility of rate hikes if inflation stays above target. Friday's Producer Price Index (PPI) reinforced that caution, with headline PPI rising 0.5% month-on-month, well above the 0.3% forecast. Money markets have pushed the first fully priced rate cut out to July, with about 50 basis points of total easing priced in by year-end.

DXY daily chart

Technical Analysis

In the daily chart, Dollar Index Spot trades at 98.52. The near-term bias is mildly bullish as price holds above the 50-day exponential moving average and stabilizes after the recent pullback. The short-term average has flattened just under 98.00, indicating emerging support under spot rather than a trending phase. Stochastic has pushed back into overbought territory but without a downturn, signalling sustained upside pressure rather than an imminent reversal.

Initial support is located at the 50-day EMA near 97.90, followed by the recent swing area around 97.60 if sellers regain control. A deeper setback would expose secondary support close to 97.10. On the upside, immediate resistance sits at the recent high near 98.80, with a break above that level opening the way toward the psychological 99.50 region where the descending 200-day EMA is moving and could cap gains.

In the weekly chart, Dollar Index Spot trades at 98.53. The near-term bias is neutral with a slight downside tilt as price holds below the gently descending 200-week exponential moving average near 100.80, underscoring a still-dominant broader downtrend. The latest stochastic bounce from the low-30s toward the mid-40s signals recovering momentum, yet the indicator remains mid-range, indicating limited directional conviction and arguing against a clear bullish reversal at this stage.

Initial resistance aligns near 99.50, where recent weekly highs cluster below the long-term average, with a break above exposing the 100.80 area as the next upside barrier. On the downside, immediate support emerges around 97.75, the prior weekly close, followed by 97.00 as the next level that would come into focus if sellers regain control. A sustained move below 97.00 would reinforce the prevailing longer-term bearish structure, whereas a weekly close above 100.80 is needed to shift the bias toward a more durable upside phase.

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

ING’s Frantisek Taborsky warns CEE currencies face downside as the Iran-related energy shock hits an import-dependent region. Higher Oil and gas prices and a stronger Dollar are expected to weigh on CEE FX and delay rate-cut plans. Hungary and Turkey are highlighted as most exposed, with EUR/HUF likely to see the strongest upward pressure and USD/TRY kept in check by the central bank.

Energy shock and positioning weigh on CEE FX

"The conflict in the Middle East is affecting the CEE region mainly through energy prices due to its energy import-dependency and heavy price-taking factors. While it is difficult to estimate the development of global energy prices at this point, it is clear that this will be a one-way street for the market at the opening. Therefore, we generally expect CEE currencies to come under pressure due to risk-off sentiment and rates receivers due to higher inflation expectations through higher oil and gas prices and a stronger US dollar."

"In terms of inflation sensitivity to higher oil prices, we see Turkey as the most exposed (10% oil price increase translates into 1.1ppt in CPI) and Hungary (0.45ppt). On the other hand, the Czech Republic shows the lowest pass-through (0.2ppt). However, it can be assumed that central banks considering imminent rate cuts in the region (which is all except Romania) will instead wait and see for now."

"The first test will be the National Bank of Poland on Wednesday, where we expected a rate cut before the conflict began; this seems rather unlikely from today's perspective."

"Within the region, we expect the Hungarian forint and Turkish lira to be under pressure as the most long currencies. The Central Bank of Turkey already announced its readiness on Sunday, as well as new intervention in the forward market, and at the same time it is entering the stress period with record FX reserves."

"Therefore, we expect USD/TRY to remain under the control of the central bank. EUR/HUF is likely to see the most upward pressure within the region."

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

• Gold rallies as escalation of the US-Iran war heightens geopolitical risk.
• DXY climbs near 98.70, yet haven flows and oil-driven inflation fears underpin bullion.
• Markets still price an easing by the Federal Reserve despite reduced dovish bets.

Gold prices advance over 1% on Monday, as geopolitical risks rise due to the escalation of the conflict in the Middle East that sparked an attack from the US and Israel on Iran. At the time of writing, XAU/USD trades at $5,341 after hitting a one-month high of $5,419 earlier in the day.

Geopolitics drive XAU’s price action

The attack that began targeting the elimination of Iran’s Ayatollah Ali Khamenei has broadened. Attacks from Hezbollah on Israel triggered a retaliation from the latter, while Tehran launched missiles and drones at Israel, the Gulf states and a UK airbase near Cyprus.

Recently, US President Donald Trump said the operation is going very well. “We’re knocking the crap out of them,” he stated in an interview with CNN. He was asked about how long the war might last, Trump commented that he thought four weeks, but added that they’re ahead of schedule.

Geopolitical uncertainty amidst the Middle East conflict and the lack of progress in peace talks between Ukraine and Russia are likely to underpin bullion prices.

Also, the jump in Oil prices stoked inflation fears, triggering a move in tandem with Gold and the Greenback, according to the US Dollar Index (DXY). The DXY, which tracks the buck’s performance against six currencies, is up 1%, at 98.67 at the time of writing.

Further Gold’s upside as Fed dovish bets weaken the Greenback

Speculation that the Federal Reserve (Fed) policy will ease is a tailwind for Gold price. Money market players are pricing in 49 basis points of easing, down from 61 basis points, according to Prime Market Terminal.

However, traders seem confident that the Fed will reduce rates at least twice in 2026.

The ISM revealed that the Manufacturing Purchasing Managers Index (PMI) in February remained at expansion territory for the second straight month. The ISM revealed that business activity dipped from 52.6 to 52.4. The ISM Prices Paid subcomponent jumped to its highest level in three and a half years, a sign that import tariffs are pushing up input costs.

Analysts at BNP Paribas commented that physical Gold investment demand is a key driver this year. Gold-backed ETFs are showing an accumulation of 2 million so far this year and expect more purchases by Chinese investors than in 2026.

Ahead of the US economic docket will feature speeches by Federal Reserve officials John Williams of the New York Fed, and Kansas City Fed President Jeffrey Schmid.

XAU/USD Technical outlook: Gold retreats from three-week high, eyes on $5,300

Gold’s uptrend remains intact, yet price action shows that bulls are booking profits as the yellow metal has retreated from four-week highs hit during Monday’s European session past $5,400. Momentum remains positive for Gold as depicted by the relative Strength Index (RSI), which remains in bullish territory, far from overbought.

If XAU/USD rises past $5,350, the first resistance would be $5,400, followed by the day’s high at $5,419. Overhead, the next area of interest would be $5,451, the January 30 high, ahead of the record high near $5,600.

Conversely, if Gold tumbles below $5,300, the first support would be the February 27 daily high turned support at $5,279, followed by $5,250. Once surpassed, the next stop would be $5,200.

• US equities sold off at the open but recovered sharply from session lows as investors digest the US-Israel military strikes on Iran over the weekend.
• Oil prices surge over 8% on fears of supply disruption through the Strait of Hormuz, lifting energy stocks while hammering airlines and travel names.
• Defense stocks rally hard with Lockheed Martin, Northrop Grumman, and RTX all posting strong gains on expectations of prolonged military spending.
• ISM Manufacturing PMI comes in at 52.4 for February, marking the second straight month of expansion.

The Dow Jones Industrial Average is trading down around one-fifth of one percent at the time of writing on Monday. The S&P 500 is nearly flat, while the Nasdaq Composite has flipped green for the day. All three indexes have staged a significant recovery from their session lows: the Nasdaq was down as much as 1.6% earlier in the session, while the S&P 500 and Dow both pulled back around 1.2% at their worst.

Oil rips, Gold catches a bid, and the VIX spikes

The escalating US-Iran conflict is the dominant theme in markets on Monday. Over the weekend, the US and Israel launched coordinated strikes on Iran in an operation dubbed "Epic Fury," which killed Iran's Supreme Leader Ayatollah Ali Khamenei. Iran retaliated with strikes against US bases in the Middle East, killing three US service members. West Texas Intermediate (WTI) Crude is trading around $72 per barrel, up roughly 8% from Friday's close near $67. Brent Crude has hit a new 52-week high above $78. The surge reflects fears of supply disruption through the Strait of Hormuz, where container shipping giants have already suspended operations and rerouted vessels around Africa. Gold is catching a strong safe-haven bid, trading near $5,400 per ounce, up over 2% on the day. The CBOE Volatility Index (VIX) has surged about 19% to around 23.6, its highest level of 2026 so far, pushing above its long-run average around 20.

Defense stocks soar, airlines and travel names get crushed

It's a tale of two sectors. Defense names are flying, with Lockheed Martin (LMT) up over 3%, Northrop Grumman (NOC) gaining around 4%, and RTX (RTX) climbing a similar amount. Drone maker AeroVironment (AVAV) has jumped more than 10%. Investors are betting that the conflict translates directly into accelerated government defense spending. On the flip side, travel and airline stocks are getting hammered. United Airlines (UAL) is down over 5%, with American Airlines (AAL) and Delta Air Lines (DAL) falling a similar amount. Hotel chains Marriott International (MAR) and Hilton Worldwide (HLT) are both lower, while booking platforms Expedia (EXPE) and Booking Holdings (BKNG) are also seeing significant selling pressure as the conflict disrupts global tourism and cancels flights to Middle East destinations.

Energy producers rally on surging Oil prices

The Oil price spike is translating directly into gains for energy producers. Exxon Mobil (XOM) is up around 4%, Chevron (CVX) is gaining roughly 3%, and ConocoPhillips (COP) is advancing over 5%. Tanker stocks are also surging on expectations of longer shipping routes — Frontline (FRO) is up more than 5%, DHT Holdings (DHT) is gaining 7%, and International Seaways (INSW) is up 6%. The big question for markets from here is whether the surge in Oil prices translates into a fresh round of inflation concerns that complicates the Federal Reserve's (Fed) rate path. Rates markets are currently pricing in a roughly 96% probability that the Fed holds rates steady at 3.50-3.75% at its March meeting, and the spike in energy prices gives policymakers even less reason to cut anytime soon.

Nvidia bets big on photonics with $4 billion investment

In corporate news outside the geopolitical chaos, Nvidia (NVDA) announced it is investing $2 billion each in Lumentum Holdings (LITE) and Coherent (COHR) as part of multi-year strategic partnerships focused on advanced photonics technology for next-generation AI data centers. Both Lumentum and Coherent surged over 7% in premarket trading on the news, though gains have moderated through the session. Nvidia itself is trading lower on the day as part of the broader risk-off move, despite the investment being viewed positively for its AI infrastructure ambitions. Light-based photonics technology is increasingly seen as critical for scaling AI networks and reducing energy bottlenecks in data centers.

ISM Manufacturing PMI holds in expansion territory

On the data front, the Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) came in at 52.4 for February, slightly below January's 52.6 but still comfortably in expansion territory. It marks the second straight month of expansion for the manufacturing sector — only the third time in 40 months. New Orders came in at a healthy 55.8, down from 57.1 in January but still showing solid demand. The Prices Index and Supplier Deliveries sub-indexes are worth watching in the weeks ahead, particularly if the Oil price surge persists — higher input costs and potential shipping disruptions could start feeding through to the manufacturing sector and complicate the inflation picture heading into the second quarter.

Dow Jones daily chart

MUFG’s Senior Currency Analyst Michael Wan argues that sustained Oil price spikes linked to the Iran conflict would pressure most Asian currencies, as regional economies are largely net Oil importers. He highlights KRW, INR and PHP as more vulnerable, while CNH and MYR appear relatively resilient. Wan also notes potential delays to rate cuts and steeper FX forward curves across Asia.

Oil spike fallout for Asian currencies

"For Asia FX, a prolonged and escalating conflict with sustained oil price spikes will weigh on Asian currencies given that most in our region are net oil importers."

"If meaningful oil price increases are sustained, we think the likes of KRW, INR, and to some extent PHP are more vulnerable given their linkages to oil imports and also KRW’s higher beta nature. Meanwhile, CNH and MYR should be relatively more resilient in an Asian context."

"From an inflation perspective, our analysis shows that CPI inflation could rise by around 0.1-0.9pp across Asia, with Thailand, Vietnam, the Philippines, and South Korea the most sensitive to oil price increases."

"Overall, we don’t think Asian central banks will hike rates just because of this risk, but it could delay rate cuts for the likes of the Philippines and Indonesia, and further reduce the probabilities of cuts for markets such as India and South Korea."

"We will likely see some steepening in FX forward curves especially in these markets in Asia reflecting also higher risk premia. From a global perspective, we would expect relative havens such as JPY to outperform in the near-term, while higher beta FX such as AUD to underperform."

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