Forex News

• AUD/USD strengthens despite an unexpected rise in the Australian Unemployment Rate.
• Strong job creation partly offsets signs of labor market weakening.
• The Federal Reserve’s cautious stance caps the pair’s upside potential.

AUD/USD trades around 0.7050 on Thursday, up 0.34% on the day, supported by the resilience of the Australian Dollar (AUD) following the release of Australia’s employment data.

Figures published by the Australian Bureau of Statistics showed the Unemployment Rate rising to 4.3% in February from 4.1% in January, exceeding market expectations. This deterioration in labor market conditions could, in theory, weigh on the currency by reducing expectations of further monetary tightening. Money markets have already slightly adjusted their outlook, lowering the probability of a rate hike in May.

However, this apparent weakness is largely offset by strong job creation. The Australian economy added 48.9K jobs over the month, well above forecasts of 20.3K, highlighting still-solid underlying momentum. This mix of signals keeps uncertainty around the Reserve Bank of Australia (RBA) policy path elevated, although its relatively hawkish bias continues to support the Aussie.

The RBA also warned about external risks, particularly rising tensions in the Middle East, which could disrupt energy markets and increase risks to global growth. These factors may influence economic and monetary policy prospects in the coming months.

On the US side, a pause in the US Dollar’s (USD) recent rally provides additional support to the pair. However, the Federal Reserve (Fed) maintains a cautious stance, keeping rates unchanged within the 3.50%-3.75% range while emphasizing persistent inflation risks. Chair Jerome Powell stressed that further progress on inflation is needed before considering any rate cuts, reinforcing the higher-for-longer narrative.

In this context, any further US Dollar depreciation may remain limited, which could restrain AUD/USD’s upward momentum in the near term.

HSBC strategists Jose Rasco and Michael Zervos say the Federal Reserve kept the funds rate at 3.50%-3.75% and signalled a clear wait-and-see stance. They expect no rate changes through 2026 and 2027 as inflation risks have risen with higher energy prices, while labour market risks have shifted modestly to the downside and geopolitical tensions cloud the outlook.

Policy on hold as risks stay two sided

"At its March meeting, the Fed again left the policy rate unchanged at 3.50%-3.75% and signalled a clear "wait-and-see" stance. Persistent inflation and rising geopolitical risks have created uncertainty for Fed members."

"We maintain our view that the Fed will keep rates unchanged throughout 2026 and 2027. Inflation risks have moved higher, particularly due to the spike in energy prices, while labour market risks have shifted modestly to the downside."

"Volatile energy prices and geopolitical risks should continue to support safe-haven demand and the USD."

"We remain overweight on US and global equities, supported by strong earnings and structural tailwinds, as US stagflation risks remain low in spite of the Middle East conflict."

"In fixed income, we stay neutral on Treasuries given range-bound yields, while favouring investment grade corporate bonds for their attractive yields and emerging market local currency debt for diversification. We complement this with allocations to gold and alternatives to manage volatility and enhance diversification."

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

Christine Lagarde, President of the European Central Bank (ECB), explains the ECB's decision to leave key rates unchanged at the March policy meeting and responds to questions from the press.

Follow FXStreet's ECB Live Coverage here

ECB press conference key quotes

"War is disrupting commodity markets, weighing on confidence."

"Any fiscal response to energy shock should be temporary, targeted and tailored."

"Indicators of underlying inflation remain consistent with 2% target."

"Corporate profits recovered, labour costs rose."

"Wage indicators point to continued moderation."

"Increase in energy prices will drive inflation above 2% in near term."

"Indirect effects would require close monitoring."

"Risks to growth outlook tilted to downside."

"A prolonged war could increase energy prices for longer, erode incomes."

"Deterioration in market sentiment may dampen demand."

"Trade frictions may disrupt supply chains."

"If war is proved to be short-lived, economy might get stronger."

"New technologies may drive up growth."

"Risks to inflation are tilted to upside especially in the near term."

"War in Middle East tightened financial conditions."

"Short-term rates have risen notably."

"Governing Council was briefed by experts, including military affair professor."

"Mood of Council was calm, determined, laser focussed on information."

"Our decision was unanimous."

"We're well-positioned to deal with the development of a major shock unfolding."

"We'll be particularly attentive to all commodity markets, supply bottlenecks."

"We'll be attentive to selling prices for firms."

"We'll be attentive to all demand indicators, wage trackers."

"In baseline, there is a bit of propagation from energy."

"Severe scenario has price of oil and gas significantly up and then falls back to baseline by end of horizon."

"In severe scenario oil price falls back beyond end of projection horizon."

"There is significant difference between scenarios."

This section below was published at 13:15 GMT to cover the European Central Bank's (ECB) monetary policy announcements and the immediate market reaction.

The European Central Bank (ECB) announced on Thursday that it left key rates unchanged following the March policy meeting, as expected. With this decision, the interest rate on the main refinancing operations, the interest rates on the marginal lending facility and the deposit facility stood at 2.15%, 2.4% and 2%, respectively.

Key takeaways from ECB policy statement

"ECB is determined to ensure that inflation stabilises at 2% target in medium term."

"War in Middle East has made outlook significantly more uncertain, creating upside risks for inflation and downside risks for economic growth."

"ECB is well-positioned to navigate this uncertainty."

"Incoming information in period ahead will help ECB assess how war will affect inflation outlook and risks surrounding it."

"ECB is closely monitoring situation, and its data-dependent approach will help it set monetary policy as appropriate."

"Staff projections exceptionally incorporate information up to 11 March, a later cut-off date than usual."

"Inflation has been revised up compared with December projections, especially for 2026."

"For inflation excluding energy and food, staff project an average of 2.3% in 2026, 2.2% in 2027 and 2.1% in 2028."

"This is also higher than path in December projections, mainly owing to higher energy prices feeding into inflation excluding energy and food."

"Staff expect economic growth to average 0.9% in 2026, 1.3% in 2027 and 1.4% in 2028."

"In line with ECB’s monetary policy strategy commitment to incorporate risks and uncertainty into its decision-making, staff also assessed how war in Middle East could affect economic growth and inflation under some alternative illustrative scenarios."

"Scenario analysis suggests that a prolonged disruption in supply of oil and gas would result in inflation being above, and growth being below, baseline projections."

"ECB will follow a data-dependent and meeting-by-meeting approach to determining appropriate monetary policy stance."

"Interest rate decisions will be based on the assessment of inflation outlook and risks surrounding it, in light of incoming economic and financial data, as well as dynamics of underlying inflation and strength of monetary policy transmission."

"ECB is not pre-committing to a particular rate path."

"APP and Pandemic Emergency Purchase Programme (PEPP) APP and PEPP portfolios are declining at a measured and predictable pace, as Eurosystem no longer reinvests principal payments from maturing securities."

Market reaction to the ECB policy decision

EUR/USD rose sharply with the immediate reaction to the ECB's policy announcements and was last seen gaining 0.45% on the day at 1.1500.

This section below was published as a preview of the European Central Bank's policy announcements at 05:00 GMT.

• The European Central Bank is likely to adopt a wait-and-see approach amid the Iran war.
• ECB President Lagarde is likely to face multiple questions related to the impact of the Middle East conflict.
• The Federal Reserve kept rates unchanged, as expected, and forecasts one rate cut in 2026.
• EUR/USD heads into the ECB announcement with a firming bearish tone.

The European Central Bank (ECB) will announce its monetary policy decision on Thursday, following a two-day meeting.

The ECB is widely expected to keep interest rates on hold for the sixth consecutive meeting, leaving the main refinancing operations, the marginal lending facility, and the deposit facility at 2.15%, 2.4% and 2%, respectively.

Nevertheless, the macroeconomic scenario is much different from that at all previous meetings: a war in the Middle East has changed it all. ECB President Christine Lagarde has coined a new financial term, “good place,” to describe the ECB’s monetary policy stance before the war unfolded.

ECB President Christine Lagarde will hold a press conference following the announcement. Lagarde usually responds to questions aimed at explaining the reasoning behind the central bank’s decision. It’s quite likely that the Q&A will revolve around the war, oil prices, and their potential impact on inflation, and hence, future ECB monetary policy decisions.

Ahead of the announcement, the EUR/USD pair trades around the 1.1500 mark, following the Federal Reserve (Fed) monetary policy announcement.

What to expect from the ECB interest rate decision?

The ECB found a delicate balance in which inflation reached policymakers’ 2% inflation threshold, growth began to show signs of life, and interest rates were more than halved from the post-pandemic record highs.

As said, the Iran war changed it all. United States (US) President Donald Trump’s decision to join Israel and crush Iran’s nuclear power has resulted in an all-in Persian Gulf conflict, which has pushed Oil prices to levels last seen in 2021. Fears of inflation resuming its upward trend hit all major economies amid energy supply disruptions, as the war interrupted transit through the Strait of Hormuz.

It is quite unlikely that officials will immediately respond to the new world frame. Policymakers are likely to adopt a wait-and-see stance while repeating they are vigilant of macroeconomic developments and ready to act as needed.

Days after the war began, ECB President Christine Lagarde noted that the central bank would do everything necessary to keep price pressures tamed. “We will do everything necessary to keep inflation under control and ensure that the French and the Europeans do not experience inflation increases like those we saw in 2022 and 2023,” comparing the current situation to that triggered by the Russia-Ukraine war.

Also, ECB policymaker Joachim Nagel said that the central bank will move “quickly and decisively” if higher fuel prices lead to rising inflation in the EU, in an interview with Reuters.

Meanwhile, the Federal Reserve (Fed) announced its decision on monetary policy. As expected, the Fed kept its Fed Funds Target Range (FFTR) unchanged at 3.50%–3.75%.

The Summary of Economic Projections (SEP) showed policymakers still expect to deliver one rate cut in 2026 and another one in 2027. Additionally, officials revised inflation higher, with PCE inflation now expected at 2.7% at the end of 2026 vs 2.4% in December. Officials also revised their growth forecast, now seen at 2.4% for this year vs 2.3% in the previous SEP. Unemployment is seen at 4.4% for this year, unchanged from the previous estimate.

The market showed a limited reaction to the news, although prevalent risk-aversion maintained the USD on the winning side across the FX board.

The ECB is likely to adopt a cautious approach to current developments and refrain from taking a certain position on the war’s potential impact on the Euro (EUR). President Christine Lagarde is likely to repeat that officials are ready to act when needed, but refrain from providing details on the matter.

How could the ECB meeting impact EUR/USD?

As previously noted, the EUR/USD pair is hovering around 1.1500 as the USD benefits from a risk-averse environment.

Valeria Bednarik, FXStreet Chief Analyst, notes: “Technically speaking, the EUR/USD pair is bearish. The daily chart shows it remains far below all its moving averages, with a bearish 20-day Simple Moving Average (SMA) having crossed below directionless 100-day and 200-day SMAs. At the same time, technical indicators maintain their downward slopes within negative levels after correcting oversold conditions. Immediate support comes at around 1.1480, ahead of March's monthly low at 1.1411, which stands as a critical bearish barrier, unlikely to be tested within the ECB event.”

Bednarik adds: “The EUR/USD pair would need to recover beyond 1.1560 to shrug off the near-term negative tone. Additional gains expose the 1.1600 mark ahead of the 1.1640 price zone, although it seems unlikely the ECB could deliver a hawkishly enough message to push the pair towards the latter.”

Christine Lagarde, President of the European Central Bank (ECB), explains the ECB's decision to leave key rates unchanged at the March policy meeting and responds to questions from the press.

Key takeaways

"We'll be particularly attentive to all commodity markets, supply bottlenecks."

"We'll be attentive to selling prices for firms."

"We'll be attentive to all demand indicators, wage trackers."

"In baseline, there is a bit of propagation from energy."

"Severe scenario has price of oil and gas significantly up and then falls back to baseline by end of horizon."

"In severe scenario oil price falls back beyond end of projection horizon."

"There is significant difference between scenarios."

Christine Lagarde, President of the European Central Bank (ECB), explains the ECB's decision to leave key rates unchanged at the March policy meeting and responds to questions from the press.

Key takeaways

"War in Middle East tightened financial conditions."

"Short-term rates have risen notably."

"Governing Council was briefed by experts, including military affair professor."

"Mood of Council was calm, determined, laser focussed on information."

"Our decision was unanimous."

"We're well-positioned to deal with the development of a major shock unfolding."

"I cannot give you a timeline."

ING’s Global Head of Macro, Carsten Brzeski, notes that the European Central Bank kept interest rates unchanged and is in no rush to hike, despite war in the Middle East and higher Oil prices. He highlights that the ECB appears on high alert, treating the current energy shock largely as a supply-side issue and preferring to wait for more clarity.

ECB holds fire but sounds wary

"Until a few weeks ago, today’s European Central Bank meeting would have seen a more heated debate on possible further rate cuts. The war in the Middle East, however, has changed everything. Instead of rate cuts, it's now rate hikes that might be on the table again."

"However, judging from the just-announced decision, a rate hike is not imminent. The change in tone and language in the policy announcement points to more uncertainty, but also signalled that – at least for now – the ECB will treat the energy price shock as a one-off, though it'll obviously remain on high alert."

"In any case, at least at first glance, the current situation would qualify as a typical supply-side shock – which shouldn’t necessitate a monetary policy reaction. As much as we believe in ECB magic, the central bank will not be able to end the war in the Middle East or bring down oil prices, unless they have any secret reserves in the basement of the EuroTower that they could sell to Europeans."

"We expect the central bank to talk like a hawk but not to walk like a hawk – or better, to fly like a hawk. At least for now, that is."

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

Christine Lagarde, President of the European Central Bank (ECB), explains the ECB's decision to leave key rates unchanged at the March policy meeting and responds to questions from the press.

Key takeaways

"Euro area growth is driven by services."

"Investment should grow."

"War is disrupting commodity markets, weighing on confidence."

"Any fiscal response to energy shock should be temporary, targeted and tailored."

"Indicators of underlying inflation remain consistent with 2% target."

"Corporate profits recovered, labour costs rose."

"Wage indicators point to continued moderation."

"Increase in energy prices will drive inflation above 2% in near term."

"Indirect effects would require close monitoring."

"Risks to growth outlook tilted to downside."

"A prolonged war could increase energy prices for longer, erode incomes."

"Deterioration in market sentiment may dampen demand."

"Trade frictions may disrupt supply chains."

"If war is proved to be short-lived, economy might get stronger."

"New technologies may drive up growth."

"Risks to inflation are tilted to upside especially in the near term."

Rabobank highlights that the FOMC’s March projections show higher PCE and core PCE inflation at 2.7% in 2026, yet unchanged median rate dots, implying only a temporary inflation shock. The dot plot still embeds one cut as the median, with a wide hawk–dove dispersion, while the longer-run neutral rate is nudged up to 3.1%, supporting a relatively firm US Dollar backdrop.

Higher inflation but unchanged Fed dots

"The new Summary of Economic Projections showed substantially higher inflation, both headline and core. Both are now seen at 2.7% in 2026, but they are also expected to fall rapidly to 2.2% in 2027."

"This suggests that FOMC participants expect only a temporary rise in inflation, which they could decide to look through when making rate decisions. This is confirmed by the unchanged median rate projections."

"Despite higher inflation and GDP growth, the median rate projections for 2026, 2027 and 2028 were unchanged. The longer run rate projection was actually revised upward to 3.1% from 3.0%."

"If we look at the dot plot, there is still a wide range of views in the Committee. On the hawkish side of the spectrum, 7 participants do not expect a single rate cut in 2026."

"On balance, it would take three participants who now expect one cut to change their mind to no cut, to move the median rate projection to zero cuts. Compared to the December dot plot, the range of forecasts for 2026 has narrowed to 2.6-3.6% from 2.1-3.9% and the central tendency moved up to 3.1-3.6% from 2.9-3.6%."

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