Forex News

Comments from US Treasury Secretary Scott Bessent on Wednesday offered a broad snapshot of the US administration’s thinking on the labour market, trade policy and energy security, as markets continue to navigate heightened geopolitical tensions and renewed volatility in oil prices.

Key takeaways

On the labour market, Scott Bessent struck an optimistic tone, saying he remains bullish on job creation this year. He emphasised that sustainable employment gains must come from the private sector, adding that the recent strength in temporary employment is often an early signal of broader hiring momentum.

On trade policy, Bessent indicated that tariffs could rise to around 15% sometime this week, though he suggested the move would likely be temporary. Rates are expected to revert to previous levels in roughly five months, while the administration conducts additional Section 301 and Section 232 reviews.

Energy markets were another focus. Bessent argued that crude markets remain well supplied, noting that significant volumes of oil remain outside the Gulf region. He added that the United States is coordinating with other countries and could take steps to ensure safe tanker passage if needed.

He also highlighted China’s vulnerability on the energy front, noting that the country’s reliance on imported crude leaves it exposed to potential disruptions in global supply chains.

BNY’s Head of Markets Macro Strategy Bob Savage highlights that Eurozone composite PMI has risen to a three‑month high, extending private sector expansion, with Germany leading and France still in mild contraction. In the report, the ECB’s outlook is described as having swung from a marginal chance of a cut to a 50% chance of a hike in just two sessions, reshaping rate expectations and supporting the Euro.

Stronger data and hawkish repricing

"The Eurozone’s February composite PMI rose to 51.9 from 51.3 in January, marking a three-month high and extending the private sector expansion to 14 months, as stronger domestic demand lifted both manufacturing and services output."

"The services PMI increased to 51.9 from 51.6, a two-month high, with sales growth driven by domestic orders while export business continued to contract marginally."

"Among major economies, Germany led growth, Italy expanded at a faster pace, Spain slowed and France remained in contraction."

"The ECB’s outlook has now shifted from a marginal chance of a cut this year to a 50% chance of a hike in the space of two trading sessions; all associated EMEA central banks will also need to look at transmission mechanisms as well and keep potential policy gaps to a minimum."

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

• Iranian intelligence operatives reportedly signalled openness to discussions with the US through an intermediary channel.
• Officials in Washington remain skeptical about the possibility of near-term negotiations.
• The report comes days after joint United States and Israeli strikes against Iranian targets.

Iran may have quietly explored the possibility of opening communication channels with the United States (US) despite the ongoing conflict, according to a report from the New York Times on Wednesday. The report states that operatives from Iran’s Ministry of Intelligence indicated to the United States Central Intelligence Agency (CIA) that Tehran could be open to discussions aimed at ending the war.

According to officials briefed on the matter, the message was delivered indirectly through the intelligence service of an unnamed country. Middle Eastern officials and representatives from a Western nation reportedly confirmed that the signal of openness was conveyed through this backchannel, although the details of the proposal remain unclear.

Despite the reported outreach, officials in Washington remain doubtful that either side is currently prepared to pursue serious negotiations. According to the New York Times, there is skepticism within the US administration regarding whether Tehran or the administration of US President Donald Trump is ready to consider a realistic diplomatic exit from the conflict in the near term.

Public statements from both sides appear to reinforce that skepticism. Iran’s ambassador to the United Nations (UN) in Geneva said on Tuesday that negotiations with the United States were not currently being considered, following the recent military strikes conducted by the US and Israel against Iranian targets.

President Donald Trump also said on Tuesday that Iran had expressed interest in talks. Still, he argued that the opportunity had passed, indicating that US military operations against Iran would continue.

These conflicting signals highlight the uncertainty surrounding the possibility of diplomatic engagement as the conflict continues, with unofficial intelligence channels potentially remaining one of the few avenues for indirect communication between the two countries.

Rabobank's Senior FX Strategist Jane Foley discusses USD/JPY backing off highs near 158 as profit taking and hawkish comments from BoJ Governor Ueda support the Japanese Yen. The bank highlights Japan’s vulnerability to higher energy prices but stresses the Yen’s safe haven role. Foley forecasts USD/JPY moving back to 145 on a one-year horizon, assuming further BoJ rate hikes.

Yen benefits from risk repricing and policy

"In early European trading, profit taking on long USD positions allowed USD/JPY to back off from yesterday’s highs in the 157.97 area."

"Looking ahead, a more hawkish tone from the BoJ would be supportive for the JPY. If other central banks are also forced to adopt less accommodative tones, this may increase volatility and undermine the environment for carry trades which is also likely to be JPY supportive."

"This morning BoJ Governor Ueda warned that the conflict in the Middle East could have a significant impact on Japan’s economy through energy prices and potentially from the impact on financial markets. While the market sees little chance of a BoJ rate hike at the March policy meeting, expectations of a move in April have been strengthening."

"If FX volatility rises, however, we would expect the JPY to perform better. Our forecast of a move back to USD/JPY145 on a 1-year view assumes the BoJ will continue to hike rates this year"

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

TD Securities’ Global Strategy Team notes that UK Chancellor Reeves delivered a cautious Spring Statement with no major new policies. Updated OBR projections show slightly slower UK growth in 2026 but stronger growth thereafter, alongside lower inflation forecasts. The team highlights that reduced financing needs and remaining fiscal space could be used if geopolitical risks intensify or policy is loosened later.

Spring Statement and OBR projections

"As largely expected, Chancellor Reeves played it safe in her fiscal forecast update, with no material new policies announced. The OBR projections showed more headroom by 2029-30, at £23.6bn (vs £21.7bn prior)."

"Macro projections were updated as well, showing slightly slower growth in 2026, but stronger growth thereafter (and alongside a downward revision to population estimates, means stronger per capita GDP growth as well)."

"The OBR's inflation forecast was lowered for 2026 to 2.3%, and remains unchanged at 2.0% in 2027. These numbers suggest that there is still fiscal space available should current geopolitical developments require it or should the government decide to slightly loosen policy in its Autumn budget. "

"The UK DMO’s Net Financing Requirement for FY26/27 was reduced to £257.1bn as compared to £314.7bn in FY 25/26."

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

Brown Brothers Harriman’s Elias Haddad notes the Dollar has retraced part of its recent surge but still benefits from short-term haven demand linked to Dollar funding needs. Rising cross-currency basis points to higher USD borrowing costs as stress lifts demand for short-term funding. However, BBH warns that prolonged conflict and stagflation risks argue against sustained Dollar strength.

Funding stress underpins short term USD

"USD retraced some of this week’s sharp gains. Still, USD can continue to benefit in the short-term from haven bid driven by dollar funding needs. The cross-currency basis, the extra cost investors pay or receive to get dollars using another currency, has narrowed for the majors implying the cost of borrowing USD has increased."

"However, a protracted conflict that leads to further disruption in energy production and shipping raises the risk the US economy enters stagflation and worsens the already fragile US fiscal backdrop. That argues against sustained USD strength."

"Focus today are on the February ADP jobs (1:15pm London, 8:15am New York) and ISM services index (3:00pm London, 10:00am New York). Consensus expects ADP private payrolls at +50k vs. +22k in January. The ISM services index is projected at 53.5 vs. 53.8 in January."

"Pay attention to the ISM Prices Paid and Employment sub-indexes for signs that the tension between employment and inflation is diminishing or worsening. The Fed Beige Book (7:00pm London, 2:00pm New York) will also offer fresh anecdotal insights on the US labor market and inflation backdrops."

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

• EUR/JPY remains under pressure around 183.00, down about 0.10% on the day.
• Germany and Eurozone PMI data show improving activity in February.
• War in the Middle East boosts demand for the JPY as a safe-haven asset.

EUR/JPY trades around 183.00 on Tuesday at the time of writing, down 0.10% on the day, as the Japanese Yen (JPY) benefits from renewed safe-haven demand amid rising geopolitical tensions in the Middle East.

On the European macroeconomic front, data released earlier in the day pointed to improving economic activity. The Germany HCOB Services Purchasing Managers Index (PMI) rose to 53.5 in February, slightly above market expectations of 53.4 and up from 52.4 in January. Meanwhile, the German Composite PMI edged higher to 53.2 from the previous 53.1.

Across the Eurozone, the Composite PMI climbed to 51.9 in February from 51.3 in January, marking a three-month high. The Services PMI also improved to 51.9 from 51.6 previously, indicating a faster pace of output growth compared with the start of the year.

Inflation data, released on Tuesday,  also delivered mixed signals for the monetary policy outlook. According to a flash estimate from Eurostat, the Eurozone Harmonized Index of Consumer Prices (HICP) rose 1.9% YoY in February, compared with 1.7% in January. Core inflation, which excludes volatile components such as food, energy, alcohol and tobacco, increased to 2.4% YoY, above both the market consensus and the previous reading of 2.2%.

Despite these relatively supportive economic indicators for the Euro (EUR), the Japanese Yen is currently benefiting from increased risk aversion. Tensions between the United States (US), Israel and Iran have intensified after US President Donald Trump stated that most of Iran’s military installations had been “knocked out” and that new strikes targeted Iranian leadership, according to CNBC. The escalation is supporting demand for safe-haven assets, including the JPY.

The Japanese currency is also receiving support from comments by policymakers. Bank of Japan (BoJ) Deputy Governor Ryozo Himino said on Monday that the current policy stance remains “somewhat accommodative”, but added that the central bank should gradually raise interest rates if its economic and inflation projections are met.

However, the upside potential for the Japanese Yen may remain limited. According to Reuters, sources familiar with the BoJ’s thinking indicated that recent market volatility triggered by the Middle East war has increased the likelihood that the BoJ could delay a potential rate hike at its March meeting. This caution comes alongside reservations expressed by Japanese Prime Minister Sanae Takaichi regarding further monetary tightening, which could limit Japanese Yen gains and prevent a deeper decline in EUR/JPY.

Analysts at MUFG also noted that the JPY currently stands between two opposing forces: support from rising risk aversion and uncertainty surrounding Japan’s monetary policy outlook. According to the analysts, stronger safe-haven flows could support further JPY appreciation, while the persistence of the Middle East war could reduce the likelihood of a near-term rate hike by the Bank of Japan.