Forex News

MUFG highlights that United Kingdom (UK) rate expectations have flipped from cuts to a possible hike as the energy shock lifts inflation risks, supporting recent Pound Sterling (GBP) outperformance versus European peers. The Bank of England (BoE) is expected to keep rates on hold but signal concern over persistent price pressures, leaving the Pound sensitive to evolving policy guidance and energy developments.

BoE seen on hold but more hawkish

"Rate cut expectations have been scaled back even more sharply for the BoE. The UK rates market has performed an abrupt U‑turn, shifting to price the next policy move as a hike, with around 13bps of tightening priced in by year end, compared with two full rate cuts priced before the Middle East conflict."

"The Bank is expected to signal renewed concern this week about the risk of persistent inflation pressures stemming from the energy shock. In the near term, the elevated uncertainty surrounding the inflation outlook is likely to encourage a stronger majority to vote to keep rates on hold until greater clarity emerges."

"The updated communication may open the door to tighter policy if required to contain upside inflation risks, while emphasising that the policy outlook remains conditional on the duration of the energy price shock. Like the Fed, the BoE’s policy rate is judged to be mildly restrictive, which helps ease immediate pressure to respond by raising rates."

"In the FX market, the sharper hawkish repricing of UK rates has supported GBP strength against other European currencies in recent weeks. EUR/GBP has fallen back toward the lows seen since the middle of last year, around 0.8600."

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

Nordea economists Kjetil Olsen and Sara Midtgaard expect the Sweden's central bank, Riksbank to leave its policy rate at 1.75% on 19 March and through 2026, as inflation forecasts are only modestly revised and uncertainty over energy prices is high. The war in the Middle East has shifted the risk balance from clear rate-cut bias to a more neutral stance.

War-driven uncertainty delays rate moves

"Revisions to the inflation forecasts are so far modest. However, uncertainty as for energy prices remains pronounced. In the near term, the bank is likely to stay sidelined, while stressing that it is ready to act."

"But the situation is uncertain and could change rapidly. This uncertainty is likely to lead the Riksbank to adopt a wait-and-see approach at its meeting on 19 March. We expect the policy rate to be left unchanged at 1.75%, and the rate path to remain intact from the December report, implying an unchanged policy rate throughout most of 2026."

"In response to the war in the Middle East, we have raised our forecast for CPIF inflation by around 0.5 percentage points. This brings our CPIF path into line with the Riksbank’s assessment from December."

"The risk balance in the assessment of the policy rate has shifted, from a clear probability of a rate cut to a more balanced risk profile. Timing is key. The longer the conflict persists, the greater the likelihood of a rate hike."

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

TD Securities’ Senior Commodity Strategist Ryan McKay analyzes how disruptions around the Strait of Hormuz and Bab El-Mandeb are reshaping Saudi crude export risks and bypass capacity, with implications for Oil supply tightness. The report details flows via Yanbu, Very Large Crude Carrier (VLCC) routing, Suez Canal and SUMED pipeline constraints, and potential exposure of Saudi barrels to Houthi attacks.

Saudi bypass flows and Houthi disruption risk

"Up to 16-17m b/d of crude flow through the Strait of Hormuz has been halted. Roughly 7m b/d of those flows are able to bypass the Strait. Saudi Arabia has approximately 5-5.5m b/d of spare capacity compared to pre-war levels available on the East-West pipeline to export crude via the Red Sea."

"The Saudi East-West pipeline is seemingly running at full capacity and the Yanbu ports are showing 13m b/d of scheduled crude loadings for export this week and over 5m b/d next week."

"Based on current schedules at least roughly 70-75% of Yanbu exports could face disruption risk if the Red Sea sees Houthi interference. Of the Yanbu exports, 90% are set to be loaded on VLCCs, and at least 80% of that is likely heading to Asian markets or the Saudi Jazan refinery further down the West Coast. When fully laden, VLCCs cannot transit the Suez Canal, suggesting these flows will need to transit through the Bab el-Mandeb Strait."

"Up to 2-2.5m b/d of scheduled VLCC flows could avoid the Houthi threats by heading North. Given the recent surge in Egyptian imports of Saudi crude, we anticipate as much as 2-2.5m b/d worth of the scheduled VLCC loadings could go to the port of Ain Sukhna, which uses the 2.5-2.8m capacity SUMED pipeline to move oil to the Sidi Kerir terminal on the Med Sea where it is then exported elsewhere. This path would likely avoid Houthi risks, but just over 2m b/d seems to be the upper limit for this avenue."

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

National Bank of Canada (NBC) economists Matthieu Arseneau and Alexandra Ducharme say Canada’s latest CPI print shows inflation under control before the recent rise in Oil prices. Headline and core measures are both below 2.0%, with shelter inflation moderating. They expect inflation to move toward 3.0% as higher Oil prices pass through, but see core inflation relatively insulated, giving the Bank of Canada (BoC) some policy flexibility.

Inflation soft as Oil shock looms

"This morning’s CPI release is already somewhat outdated, given how much the outlook has shifted following the conflict in the Middle East."

"Inflation was lower than economists had expected at 1.8%, a significant drop from the 2.3% recorded in January, due to changes in indirect taxes from a year ago."

"That said, when indirect taxes are excluded, inflation in Canada is also mild at 1.9%, falling below the 2.0% threshold in February for the first time in 15 months. It turns out that shelter, the index’s heavyweight component, continues to moderate and now stands at just 1.5%, below its pre-pandemic average (2.2%,1999-2019)"

"Meanwhile, the core inflation measures favored by the Bank of Canada are rising at an even slower pace, averaging 1.0%, a sign that price moderation across the country is widespread across components."

"Looking ahead, we expect inflation to move toward the upper end (3.0%) of the BoC’s target range in the coming months as higher oil prices feed through the economy. That said, assuming some degree of de-escalation in the near term, core inflation should remain relatively insulated from these dynamics in the short term."

"This could give the BoC some latitude to look through the rise in headline inflation, particularly since underlying price pressures appeared well contained prior to the conflict in a context where the economy is in oversupply, weakened by uncertainty over tariffs."

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

ING’s Warren Patterson revises the base case for global Energy markets, abandoning an earlier assumption of a quick two-week disruption in the Strait of Hormuz. The new scenarios extend severe disruption into late March or beyond, with only gradual normalisation through the second and third quarters.

Reworked scenarios extend disruption risk

"At the start of the war, in our base case we assumed a two-week full disruption to energy flows through the Strait of Hormuz and then a gradual recovery over the remainder of March, which would have led to near-normal flows by April. That was clearly too optimistic, with us now in the third week of the conflict and no signs of energy flows resuming. We have therefore had a hard rethink of our scenarios, along with our base case."

"In our new scenario 1, which is our base case, we assume that Strait of Hormuz flows remain cut off until the end of March, which corresponds with the view that intense combat between the US-Israel and Iran continues until the end of the month. This is followed by lower intensity strikes, along with more signs of diplomacy, which start to allow for a gradual recovery in energy flows in the second quarter."

"Over this time, upstream production, refineries and LNG facilities start to slowly ramp up as storage constraints start to ease. However, it would only be by the start of the third quarter that we see a return to near-normal flows. This is assuming that available pipeline capacity continues to be used for some oil to bypass the Strait of Hormuz."

"Our new scenario 2 is our most optimistic scenario, where we assume that energy flows through the Strait of Hormuz remain almost fully disrupted until the end of March and gradually improve in April. This would allow supply to be back to near normal by May."

"Our new scenario 3 is our more aggressive scenario, where the intensity of the war continues into April, followed by a lower-grade confrontation for the foreseeable future, while there are few signs of diplomacy. Continued attacks on vessels navigating the Strait of Hormuz mean energy flows remain disrupted for a prolonged period."

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

Royal Bank of Canada (RBC) Senior Economist Claire Fan notes that Canadian headline inflation slowed to 1.8% in February, but base effects from last year’s GST/HST holiday and the removal of the consumer carbon tax distort comparisons. Core trim and median CPI eased to 2.3% year-over-year and just 1% on a three‑month annualized basis, while supply‑side pressures and higher Oil prices pose ongoing risks.

Core CPI cools as supply shocks linger

"Headline inflation slowed to 1.8% in February, though comparisons remain distorted by last year's GST/HST holiday (which extended through mid-February) biasing food prices higher, and the removal of the consumer carbon tax in April 2025, which depressed energy CPI."

"The Bank of Canada's core trim and median CPI measures—which exclude volatile monthly swings and indirect tax changes— offer clearer reads. In February, they continued to ease and averaged 2.3% year-over-year, the slowest pace in almost five years. On a three-month annualized basis, these measures averaged just 1% in February, well below the Bank of Canada’s 2% target."

"While the moderation in those core CPI measures is welcome as it suggests easing demand-driven inflation pressure, Canadian households continue to face supply-side headwinds, particularly in grocery items like beef and coffee where production disruptions from adverse weather take time to resolve."

"That won’t be the last of supply-driven inflation: elevated oil prices from ongoing Middle East tensions will translate into higher energy inflation in March."

"At this week's meeting, we expect the BoC to recognize growing external uncertainty but continue to hold the overnight rate at its current, borderline accommodative level of 2.25%."

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

Rabobank’s Senior FX Strategist Jane Foley argues that while the Swiss Franc meets many safe-haven criteria, its strength remains problematic for the SNB given very low inflation and a zero policy rate. Foley underlines that FX intervention is constrained by potential US Treasury scrutiny and recent US-Swiss trade tensions, even as SNB officials signal a higher readiness to intervene during the current political crisis.

SNB balances strength and intervention risks

"On paper, the CHF meets a lot of ‘safe-haven’ criteria. Liquidity is decent, Switzerland has a good budget position, a current account surplus, a credible central bank and financial system in addition to a strong rule of law. CHF strength, however, has been a frequent thorn in the side of the SNB in past decades."

"The latest Swiss CPI inflation print was a meagre 0.1% y/y (EU harmonised 0.5% y/y) and with the policy rate already at zero, the SNB has limited room for manoeuvre on interest rates. Although the SNB has maintained that a return to negative rates is plausible, clearly it is not an optimal solution. That said, FX intervention also has downsides."

"Aside from it potentially being ineffective, the other obvious risk with FX intervention is that this could trigger the wrath of the US Treasury. Last year, Switzerland underwent a very difficult series of trade negotiations with the US after reciprocal tariffs of 39% were announced by US President Trump. These were eventually cut to 15% in November, but not without cost."

"Overhanging the US/Swiss trade talks was that fact that Switzerland was on the US Treasury’s Monitoring list of currency policies and practices. This position was renewed earlier this year. That said, in September last year the US Treasury and Swiss authorities did announce a joint statement confirming that neither country target the exchange rate for competitive purposes and recognising that “foreign exchange market interventions are an important monetary policy instrument for the SNB in ensuring appropriate monetary conditions and meeting its statutory mandate with respect to price stability.”

"The September statement added weight to the comments from SNB Vice-President Martin on March 4 that “our willingness to intervene, our readiness to intervene, is higher given the recent political event”. This followed a similar statement to media outlets on March 2."

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

• USD/CAD weakens as the Canadian Dollar gains support from a softer US Dollar.
• Markets show limited reaction as Canada CPI eases to 1.8% YoY in February.
• Geopolitical tensions linked to the US-Iran war remain a key driver of market sentiment.

USD/CAD trades on the back foot on Monday as the Canadian Dollar (CAD) draws support from a softer US Dollar (USD), while traders show a muted reaction to the latest Canadian inflation data as attention remains firmly focused on heightened geopolitical tensions surrounding the ongoing US-Iran war.

At the time of writing, the pair is trading around 1.3659, pausing after a three-day winning streak that pushed the pair to two-week highs. Meanwhile, the US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, trades near 100, easing from the 10-month high of 100.54 reached on Friday.

Headline Consumer Price Index (CPI) rose 0.5% MoM in February, slightly below market expectations of 0.6% but rebounding from 0.0% in January, while the annual rate slowed to 1.8% YoY from 2.3%, coming in just under the 1.9% forecast.

The Bank of Canada’s (BoC) core CPI increased 0.4% MoM, accelerating from 0.2% in January, although the annual core measure eased to 2.3% YoY from 2.6%.

The data point to easing price pressure, reinforcing expectations that the BoC will maintain a steady policy stance as policymakers remain focused on keeping inflation close to the 2% target.

However, last week’s disappointing employment data raises the possibility that the central bank could reassess its monetary policy stance if the labor market continues to deteriorate.

Attention now turns to the BoC’s interest rate decision due on Wednesday, where policymakers are widely expected to keep the benchmark rate unchanged at 2.25%.

At the same time, the BoC could face a policy dilemma amid elevated Oil prices driven by supply disruptions through the Strait of Hormuz. While higher crude prices could add to inflation risks, Canada is also a major Oil exporter, meaning stronger energy prices may support economic growth.

As a result, policymakers may prefer a wait-and-see approach as they assess the economic impact. A Reuters poll published on March 13 showed that 25 of 33 economists expect the central bank to keep rates unchanged at least through 2026.

Markets are also reassessing the Federal Reserve’s (Fed) policy outlook, with traders scaling back expectations for rate cuts this year. The Fed is widely expected to keep interest rates unchanged in the 3.25%-3.50% range at Wednesday’s policy meeting. Investors will closely watch Fed Chair Jerome Powell’s forward guidance, along with the updated Summary of Economic Projections (SEP) and the dot plot.