Forex News

ABN AMRO economists assess how Iran-driven energy shocks could alter Federal Reserve policy and thus the US Dollar. They see limited US growth impact but materially higher inflation, with the Fed likely delaying easing in a middle scenario, potentially hiking to 4.00% and holding longer in a negative scenario, while maintaining current cut plans in a positive case.

Fed path shifts with inflation scenarios

"The inflation impact is more substantial, particularly given existing price pressures. In our central scenario, energy inflation pushes up the headline rate to nearly four percent by the second quarter of this year. It remains persistently elevated throughout the year, but energy disinflation from high base effects pushes inflation down within reach of the 2% target in the second quarter of 2027. In the negative scenario, we expect inflation to peak at about 4.7% by the third quarter and to remain elevated for substantially longer."

"How would the Fed respond? In the middle scenario, inflation rises, but we judge it to stay within the ‘look-through’ range, although this will still prevent them from easing this year. The Fed may gradually resume easing at 25 bps per quarter from Q2-2027 onwards, still reaching our expected terminal rate of 3.00% by the end of 2027. In the negative scenario, inflation rises rapidly."

"While Powell is still in charge, he’ll try and succeed to get consensus for an initial hike to 4.00%. Once Warsh joins in as chair, the transitory argument will become the dominant narrative, with FOMC members complying at the fear of triggering a substantial equity market downturn by aggressively hiking. Rates will therefore stay at the 4.00% until about the third quarter of 2027."

"In the positive scenario, we see our current Fed base case of three more cuts at a quarterly pace starting in June still in play."

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

OCBC strategists Christopher Wong and Sim Moh Siong highlight that Gold has extended its recovery as the Dollar and Oil prices retreat and risk sentiment stabilises on signs the Iran conflict may be nearing an end. They note earlier asset liquidation, slower official sector buying and Fed uncertainty had weighed on Gold, but expects demand to return with support at 5105–5060 and resistance at 5260–5315.

Recovery continues with defined key levels

"Gold extended its recovery as USD and oil prices retraced lower while risk sentiment tentatively stabilised on signs that the conflict in Iran may possibly be near its end."

"Price action was also consistent with our posturing that asset liquidation to raise cash during market stresses may have partially explained why gold struggled to break out."

"Other factors that had weighed on gold are the risk of Fed slowing or delaying next rate cut as rising oil prices may stoke potential inflationary risks for US while gold purchase momentum in the official sector slowed."

"When this phase of flight to safety passes, prior moves should unwind and demand for gold is likely to return."

"Resistance at 5260, 5315 levels. Support at 5105 (21 DMA), 5060 levels."

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

MUFG’s Head of Research Derek Halpenny reports that the IEA has proposed a record Oil reserve release of 300–400 million barrels, potentially covering 15–20 days of Strait of Hormuz flows and easing supply constraints for several weeks.

Record reserve plan versus Hormuz disruption

"The Wall Street Journal is reporting that the IEA has proposed the largest ever release of oil reserves which may be an indication that an agreement has been reached amongst G7 for the release of 300-400mn barrels that had been under discussion since the surge in crude oil prices on Monday."

"Given that usually around 20mn barrels of oil are shipped through the Strait of Hormuz per day, the release will equate to fully compensating for the closure of the Strait for between 15-20 days."

"In reality, its longer than that as Saudi has shifted exports to the west coast so this action does help alleviate the supply constraint for a reasonable period of time."

"Indeed for a time that investors have likely been assuming this conflict would last – 3-4 weeks."

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

Nomura’s Global Markets Research team revises its Euro area HICP projections higher on updated Oil and gas assumptions. The bank now sees HICP at 2.7% in 2026 and 2.2% in 2027, with inflation above target in early 2026. Nomura expects the ECB to deliver two rate hikes in 2028 and ultimately stabilise HICP at 2.0% in 2028.

Higher inflation and delayed ECB easing

"We update our euro area HICP inflation forecasts for 2026 and 2027 to reflect new assumptions on crude oil and natural gas prices. We raise our 2026 HICP inflation forecast by 0.6pp to 2.7%, and we raise our 2027 HICP inflation forecast by 0.2pp to 2.2%. We expect the ECB to ensure HICP inflation stabilises at 2.0% in 2028."

"We expect GDP growth to accelerate above potential from mid-2026 due to German fiscal spending and Spanish outperformance."

"We expect inflation to print above target in H1 2026, due to the conflict in Iran. Services inflation is sticky but moderating."

"We expect two ECB rate hikes in 2028 as growth rises above potential but see risks of hikes this year due to the Iran conflict."

"We expect a meaningful fiscal loosening in Germany this year, but there are risks it is offset by fiscal tightening elsewhere."

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

Societe Generale analysts describe EUR/USD as quiet within its recent range, with spot capped by the 200‑day moving average at 1.1676 ahead of US CPI. They flag support at 1.1560 and resistance at 1.1735, alongside sizeable nearby option expiries. The Euro is also said to be ignoring recent hawkish ECB comments despite rising yields.

Range trading below key resistance

"Yields are taking off again across the curve at the open following the string of hawkish comments by ECB council members. The intention is clearly to ensure inflation expectations stay anchored. Nagel was most hawkish, saying that the central bank will move quickly and decisively if required."

"The euro is ignoring the comments completely, with the 200dma at 1.1676 a bridge too far. Taking a slightly longer view, the likelihood of the ECB raising rates (policy currently neutral) does look more realistic compared to the BoE (policy still restrictive) on the condition that the energy supply and price shock does not transmit to growth."

"Spot quiet inside yesterday’s range as oil steadies, capped by 200dma (1.1676) ahead of US CPI. Support 1.1560, resistance 1.1735."

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