Forex News
MUFG’s Derek Halpenny notes that the recent retracement in Brent has eased immediate upward pressure on the Dollar, but he doubts the move will last given ongoing Middle East tensions and constrained supply. He highlights that higher Oil prices from current levels appear more likely, and that a deterioration in global growth expectations could see the Dollar extend gains further.
Dollar sensitivity to Brent strengthens
"So it’s hard to be convinced on the prospect of the retracement in crude oil prices lasting and it probably wouldn’t take much to see investor concerns escalate and crude to take another lurch higher."
"With the potential for this optimism to fade again quickly we continue to see scope for the dollar to extend gains further."
"If growth expectations deteriorate, then yield spreads will become less influential and the dollar would likely then extend gains further."
"At this juncture higher oil prices from current levels seems more likely than a further retracement lower."
"The DXY correlation with yield spreads has weakened considerably with a correlation with Brent taking over and hence we continue to see EUR/USD downside risks related to the conflict."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
ING’s Francesco Pesole notes that the Bank of England surprised markets with a unanimous hold and strong guidance that it is ready to act against any inflation spike. Markets added substantial tightening by year-end, though ING views this as too aggressive. The repricing has stabilised EUR/GBP, while GBP/USD remains driven mainly by Oil but supported by the BoE’s hawkish stance.
BoE repricing backs Pound but oil still key
"The Bank of England surprised on the hawkish side with a 9-0 vote in favour of a hold, as consensus was that two members would still vote for a cut. Incidentally, the MPC’s most dovish member, Swati Dhingra, openly discussed a rate hike to “stabilise rate setting dynamics” in case of a sharp rise in inflation."
"The key takeaway from the statement was the BoE is “ready to act” against an inflation spike, and markets added a mammoth 50bp of hikes by year-end, for a total of 70bp. While it’s often the case that hikes come in couples, we still believe market pricing is too aggressive, considering much less favourable conditions for second round effects relative to 2022."
"The repricing of both ECB and BoE rate expectations has kept EUR/GBP relatively stable, with all the action happening in GBP/USD. Oil prices are now back in the drivers’ seat, but the hawkish BoE tilt is offering some extra support."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
DBS Group Research economist Radhika Rao notes that the ECB kept rates unchanged but highlighted spillover risks from geopolitical tensions, with updated projections showing higher Eurozone inflation and weaker growth. She stresses that policymakers will watch for demand effects from supply shocks, and that rate hikes could re‑enter consideration in 2Q–3Q if energy-driven risks and Euro depreciation persist.
ECB steady rates but flags hawkish risks
"The ECB left the benchmark rates unchanged on Thursday. While the guidance was balanced, the council was “closely monitoring” spillover risks from geopolitical tensions as against February’s “inflation stabilises at its 2% target”, setting the stage for caution and a potential hawkish pivot in the upcoming meetings if risk scenarios materialise."
"We expect policymakers to watch for signs that the current supply-side shock is beginning to weigh on demand before taking action. Updated staff projections lifted inflation (headline and core) and lowered the growth outlook, besides releasing scenarios to incorporate the risk of sharp moves in energy prices."
"Under an adverse scenario (oil & gas to peak at $119/bl and EUR87/MWh), inflation faces a potential +0.9pp upside vs baseline in 2026 and+ 0.1pp in 2025, which could rise to +1.8pp for 2026 under a severe scenario. To recall, inflationary expectations are lower and the benchmark rate higher than the starting point of the 2022 energy shock, which suggests that the bar for a swift pivot to rate hikes is higher than current market pricing implies."
"Depending on the tone of the April policy communication, rate hikes could return to the table in 2Q-3Q, particularly if the conflict spills over into the next quarter."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
MUFG’s Derek Halpenny highlights that the Bank of England’s unanimous hold and sharp front-end repricing have driven a notable rise in UK yields, supporting the Pound. He judges the rates move as somewhat overdone and warns that a worsening Middle East situation and higher energy prices could hit equities, reverse some tightening and erode GBP support from yields.
BoE shock and yield surge back Pound
"However, our conclusion following the scale of the moves yesterday is that the rates moves look a little overdone."
"However, we maintain that if the situation in the Middle East continues to worsen and energy prices advance further, the resilience of equity markets is likely to change and sharper falls in equities will likely see some of the scale of tightening priced being reversed."
"The pound is deriving support from the surge in yields (although less support than usual for such a scale of rates move) and that will likely give way if broader risk conditions worsen."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
ING’s Francesco Pesole highlights that the ECB’s cautious tone masks a hawkish shift, with officials reportedly considering an April rate hike if inflation overshoots. Markets now price earlier tightening and higher odds of back-to-back moves. ING sees increased upside potential for the Euro, with EUR/USD possibly targeting 1.170 if war tensions ease and no new gas supply shocks emerge.
ECB April hike talk lifts EUR prospects
"The ECB opted for a cautious tone in light of energy price volatility yesterday, but President Christine Lagarde’s press conference had a hawkish undertone as she conveyed a sense of heightened concern for upside risks to inflation. But even more importantly, Bloomberg later reported that ECB officials are already considering a rate hike in April should inflation rise too far above target."
"Putting April on the table (now 15bp priced in) means that the ECB may be ready to act aggressively and pre-emptively, intuitively raising the chances of back-to-back increases."
"Our economists aren’t ready to pencil in a rate hike yet as a positive turn in the war and energy prices can still discourage the hawks. But the chances of a hike have undoubtedly increased, which raises the upside potential for the euro beyond the near-term impact of energy prices."
"Further EUR gains from here depend on no additional major shocks to gas supply."
"We think caution is very much warranted in EUR/USD at this moment, as the pair seems to be trading a bit too strong considering where oil and gas prices are. But should we see some de-escalation over the weekend, EUR/USD could be eyeing 1.170 soon, backed by a hawkish ECB message."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Derek Halpenny at MUFG underlines that Brent’s sharp pullback from near USD 120 to below USD 105 has been driven by hopes of conflict de-escalation, but he questions its durability. He points to ongoing attacks, curtailed supply, falling seaborne inventories and potential US sanctions relief on Iranian Oil, arguing that higher Brent prices from here are more likely than a deeper retracement.
Supply constraints challenge price retracement
"After nearly hitting USD 120 p/bl Brent crude oil fell below the USD 105-level yesterday on hope that the conflict could de-escalate."
"So it’s hard to be convinced on the prospect of the retracement in crude oil prices lasting and it probably wouldn’t take much to see investor concerns escalate and crude to take another lurch higher."
"Brent is drifting higher again today as supply continues to be curtailed."
"Bloomberg is reporting data from Vortex indicating the rapid decline in crude oil in storage at sea which could soon result in the US formally lifting sanctions on Iranian oil already at sea."
"At this juncture higher oil prices from current levels seems more likely than a further retracement lower."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
ING strategists Francesco Pesole, Frantisek Taborsky and Chris Turner note that the Dollar has weakened as hawkish shifts by the ECB and BoE overshadow Jerome Powell’s recent comments. Elevated Oil prices and war-related risks keep commodities as the primary FX driver, with rate expectations seen as secondary and highly dependent on developments around the Straight of Hormuz.
Dollar pressured by overseas hawkish shifts
"While oil prices remain elevated, the size of the dollar decline in the past 24 hours seems to embed some optimism about the war. What also contributed to USD losses were the hawkish surprises by the European Central Bank and Bank of England (discussed in the sections below), which seemed to dwarf the hawkish vibes from US Federal Reserve Chair Jerome Powell’s press conference on Wednesday."
"That said, our takeaway from this week of central bank decisions hasn’t changed: not enough guidance has been offered to dent oil’s role as a major market driver. Rate expectations should remain fluid and commodity price dependent, and continue to play a secondary role for FX."
"The next few days will tell us whether this wave of cautious optimism has legs. The dollar can fall more on military de-escalation news, but clarity on the Straight of Hormuz reopening is necessary to prevent USD rebounds at a second stage."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
During European trading hours, ECB officials: François Villeroy de Galhau and Madis Muller delivers remarks on inflation and geopolitical uncertainty.
ECB policymaker and governor of Bank of France François Villeroy de Galhau
ECB will remain vigilant.
We are in the face of uncertainty.
WE have the ability to act as necessary.
ECB Governing Council member Madis Muller
The current situation isn't unprecedented.
Inflation will probably be a bit higher.
Market reaction
The Euro (EUR) has reacted positively to comments from a string of ECB officials after the blackout period. As of writing, EUR/USD is down 0.14% to near 1.1572 but has recovered from its intraday low of 1.1552.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
Here is what you need to know on Friday, March 20:
The trading action in financial markets turns relatively subdued on Friday as investors assess the policy decisions by major central banks. The US economic calendar will not feature any high-tier macroeconomic data releases on Friday and market participants will stay focused on developments surrounding the Middle East conflict.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -1.26% | -1.37% | -0.76% | -0.02% | -1.42% | -1.66% | -0.13% | |
| EUR | 1.26% | -0.09% | 0.42% | 1.25% | -0.15% | -0.39% | 1.14% | |
| GBP | 1.37% | 0.09% | 0.66% | 1.34% | -0.05% | -0.30% | 1.30% | |
| JPY | 0.76% | -0.42% | -0.66% | 0.77% | -0.65% | -0.88% | 0.66% | |
| CAD | 0.02% | -1.25% | -1.34% | -0.77% | -1.43% | -1.63% | -0.10% | |
| AUD | 1.42% | 0.15% | 0.05% | 0.65% | 1.43% | -0.27% | 1.30% | |
| NZD | 1.66% | 0.39% | 0.30% | 0.88% | 1.63% | 0.27% | 1.53% | |
| CHF | 0.13% | -1.14% | -1.30% | -0.66% | 0.10% | -1.30% | -1.53% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The Bank of England (BoE) announced on Thursday that it maintained the bank rate at 3.75%, as widely expected. All nine members of the Monetary Policy Committee (MPC) voted in favor of the decision. Markets were expecting two policymakers to vote for a rate cut. In the policy statement, the BoE acknowledged that higher global energy prices are already feeding into petrol prices and said that the MPC stays ready to act as needed to ensure the Consumer Price Index (CPI) inflation remains on track to meet the 2% target and that is has a range of possible responses. GBP/USD rose sharply on Thursday and gained more than 1% before entering a consolidation phase above 1.3400 in the European morning on Friday.
The European Central Bank (ECB) decided to leave key rates unchanged following the March policy meeting, as anticipated. "The war in the Middle East has made outlook significantly more uncertain, creating upside risks for inflation and downside risks for economic growth," the ECB said. In the post-meeting press conference, ECB President Christine Lagarde noted that a prolonged war could increase energy prices for longer and erode incomes. Lagarde added that risks to inflation are tilted to the upside in the near term and said that they could have a "temporary, targeted and tailored" response to the energy shock. EUR/USD gathered bullish momentum and rose 1.2% on Thursday. Early Friday, the pair corrects lower but manages to hold above 1.1550.
Following Wednesday's rally, which was fuelled by the Federal Reserve's hawkish tone, the US Dollar (USD) Index reversed its direction and ended the day deep in negative territory on Thursday. In the European morning on Friday, the USD Index holds steady above 99.00. US stock index futures trade mixed after Wall Street's main indexes closed marginally lower on Thursday.
European Union (EU) leaders called for a moratorium on military strikes on energy and water facilities in the Middle East amid growing concerns about the impact of the Iran war on the global economy, Reuters reported on Thursday. Meanwhile, US Treasury Secretary Scott Bessent told Fox Business Network that the US may "unsanction Iranian oil on water in coming days." Crude oil prices continues to push lower after posting large losses on Thursday. At the time of press, the barrel of West Texas Intermediate (WTI) was trading near 93.50, losing about 1% on the day.
Gold extended its weekly slide on Thursday and touched its lowest level since early February near $4,500. XAU/USD stages a rebound in the European morning on Friday and trades at around $4,700.
USD/JPY gains traction and rises toward 158.50 early Friday after losing more than 1% on Thursday.
USD/CAD struggled to find direction and close virtually unchanged on Thursday. The pair edges lower on Friday but holds slightly above 1.3700. Statistics Canada will publish January Retail Sales data later in the day.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
There have been remarks from several European Central Bank (ECB) officials during the European trading session on Friday regarding the current state and outlook on inflation and interest rates.
ECB policymaker and President of the Bundesbank Joachim Nagel
As things currently stand, it is conceivable that the medium-term inflation outlook could deteriorate and inflation expectations could rise on a sustained basis, meaning that a more restrictive monetary policy stance would probably be necessary.
ECB would need April hike if price outlook sours.
ECB member and Governor of Bank of Spain José Luis Escrivá
It was very difficult to discern exactly what the impact of this rise in energy prices will be.
The ECB makes decisions based on the medium-term evolution of inflation and sometimes there are situations that subside and do not necessarily entail a change in interest rates.
The situation was highly uncertain and volatile and what we must do is continue to assess a wealth of information.
Market reaction
There seems to be a slight positive impact of comments from ECB officials on the Euro (EUR). EUR/USD rebounds to near 1.1570 from its intraday low of 1.1552, but is still 0.15% down from Thursday's close.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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