Forex News

MUFG’s Teppei Ino notes that the Dollar’s advance against the Japanese Yen has stalled after the LDP’s landslide Lower House victory, as markets had already priced in the so‑called Takaichi trade and prior intervention warnings. With USD/JPY stuck in wide but directionless ranges, Ino expects Yen selling pressure to ease in March as monetary policy signals and the prime minister’s US visit unfold.

Yen pressure expected to moderate in March

"The LDP won a landslide victory in the Lower House election."

"Markets had already priced in much of the so-called Takaichi trade, reflecting pre-election polling and repeated warning rhetoric from Finance Minister Satsuki Katayama."

"Renewed yen weakness therefore failed to gain traction."

"The government's stance on monetary policy remains difficult to gauge."

"Policymakers have at times appeared to lean against further BOJ rate hikes, leaving uncertainty around the administration's true position on one of the key drivers of yen depreciation."

"The USD/JPY has consequently traded in wide ranges but without establishing a clear directional trend."

"We expect downward pressure on the yen to ease in March as monetary policy developments unfold and the prime minister visits the US."

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

• EUR/GBP gives back part of its recent gains following disappointing German data.
• Eurozone Manufacturing PMI moves back above 50, signaling an improvement in activity.
• The Pound Sterling remains under pressure amid expectations of Bank of England rate cuts.

EUR/GBP trades lower around 0.8750 on Monday at the time of writing, down 0.23% on the day, after two consecutive days of gains. The cross is facing profit-taking as the Euro (EUR) is weighed down by weaker-than-expected consumption data in Germany.

German Retail Sales fell by 0.9% MoM in January, well below market expectations for a modest 0.2% decline, following an upwardly revised 1.2% increase in the previous month. On a yearly basis, sales growth slowed to 1.2% from 2.5% in December. This deceleration raises concerns about the strength of domestic demand in the Eurozone’s largest economy.

At the same time, business surveys provide a more encouraging signal. The Hamburg Commercial Bank (HCOB) Germany Manufacturing Purchasing Managers Index (PMI) rose to 50.9 in February from 49.1 in January. The Eurozone Manufacturing PMI was confirmed at 50.8, up from 49.5 in the previous month. Both indicators reached their highest levels in 44 months and moved back above the 50 threshold that separates expansion from contraction, suggesting a gradual improvement in manufacturing momentum.

On the UK side, the S&P Global Manufacturing PMI came in at 51.7 in February, slightly below the flash estimate of 52 and market expectations, and little changed from January’s 17-month high of 51.8. Although activity remains in expansion territory, the pace appears less robust than initially anticipated.

The Euro could nevertheless find some support in the cautious stance of the European Central Bank (ECB). ECB President Christine Lagarde recently stated that Eurozone inflation is expected to stabilize around the 2% target over the medium term, highlighting the effectiveness of the disinflation process. She added that rising labor income in a resilient job market, along with increased investment in defense, infrastructure and digital technologies, should support economic activity.

By contrast, the Pound Sterling (GBP) remains sensitive to expectations of monetary easing. Bank of England (BoE) Governor Andrew Bailey told Parliament’s Treasury Committee that there is scope for rate cuts if inflation returns to the 2% target. At the same time, BoE Chief Economist Huw Pill warned about upside risks to inflation in the United Kingdom (UK), arguing that the disinflation trend has been slower than anticipated, keeping the debate open on the pace of future easing.

The UK political backdrop adds another layer of uncertainty. The Labour Party’s defeat in the Gorton and Denton by-election has reignited questions about Prime Minister Keir Starmer’s leadership ahead of local elections in May, limiting appetite for the Pound Sterling.

Brown Brothers Harriman’s (BBH) Elias Haddad notes that the US-led military operation against Iran has driven a classic risk-off move, lifting the Dollar broadly while weighing on global equities. He adds that beyond geopolitics, the broader direction for USD and risk assets will depend on upcoming US jobs data and today’s February ISM manufacturing release.

Dollar strength on war and data focus

"Markets are in a classic risk-off mode and bracing for the broader geopolitical fallout from the US-led military operation against Iran. USD is up across the board, global equity markets are selling off, gold surged by over 4%, and Brent crude oil prices soared as much as 13%. Most major sovereign bond yields climbed as the spike in crude oil prices pushed up inflation expectations, outweighing the supportive effect of haven flows into bonds."

"President Donald Trump said on Sunday that the US military intends to sustain its assault on Iran for “four to five weeks” if necessary. The longer the conflict drags on, the thicker the fog of war becomes, and the more durable the latest market moves are likely to prove. But risk assets will rebound quickly if the campaign weakens or removes the Iranian regime."

"Beyond geopolitics, the broader direction for USD and risk assets will hinge on this week’s US jobs data."

"Today, the data spotlight is the February ISM manufacturing index (3:00pm London, 10:00am New York). The headline index is projected at 51.5 vs. 52.6 in January. Pay attention to the Prices Paid and Employment sub-indexes for signs that the tension between employment and inflation is diminishing or worsening."

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

US ISM Manufacturing PMI Overview

The United States (US) Institute of Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI) data for February is due for release today at 15:00 GMT.

The ISM report is expected to show that the manufacturing sector activity expanded again, but at a moderate pace. The Manufacturing PMI is expected at 51.8, down from 52.6 in January. Last month, manufacturing sector activity expanded for the first time after remaining below 50.0, a figure that separates expansion from contraction, for a straight 10 months.

Apart from the Manufacturing PMI, investors will also focus on sub-components of the data, such as Employment Index, Prices Paid, and New Orders Index. ISM Manufacturing Prices Paid – which reflects changes in expenditure for inputs such as labor and raw materials – is estimated higher at 59.5 from the previous reading of 59.0.

Weaker-than-projected US ISM Manufacturing PMI data would prompt expectations for interest rate cuts by the Federal Reserve (Fed), as policymakers remain concerned over the economic outlook. On the contrary, higher figures would diminish them.

How could US PMI data affect EUR/USD?

EUR/USD trades 0.75% lower at around 1.1730 at the press time. The near-term bias turns mildly bearish as spot slips below the 20-day Exponential Moving Average near 1.1800.

The 14-day Relative Strength Index (RSI) has retreated further towards 40.00 after failing to return above 60.00, indicating selling pressure at higher levels. Fresh bearish momentum would appear if the RSI breaks below 40.00.

Immediate support emerges at the trend-line break area around 1.1645, with a clear violation exposing the mid-1.1500 region and then the 1.1489 origin of the uptrend. On the upside, initial resistance stands at the 20-day EMA around 1.1800, followed by the recent swing highs at 1.1880 and then the 1.2030 peak, which caps the broader bullish structure and would need to give way to negate the current corrective tone.

(The technical analysis of this story was written with the help of an AI tool.)

Commerzbank’s Chief Economist Dr. Jörg Krämer notes that Brent crude Oil has reacted only moderately so far to the Middle East war and effective closure of the Strait of Hormuz, briefly rising above $80 before easing. He argues that if the conflict is short, the Eurozone and German economies should be little affected, but a prolonged war could push Brent towards $100 and keep it elevated.

Oil reacts moderately but upside risks grow

"The price of Brent crude oil has so far reacted relatively moderately to the war in the Middle East and the de facto closure of the Strait of Hormuz."

"The price of Brent crude oil rose to a peak of just over $80 in Asian trading and then fell slightly."

"If the war lasted only a few weeks, the German and the eurozone economy would not be significantly affected. If, on the other hand, the war were to drag on for several months, inflation in the eurozone would probably rise by at least 1 percentage point and economic growth would be a few tenths of a percentage point lower which would be painful. We assume the war to be shorter."

"In the event of a prolonged war, the Strait of Hormuz is likely to remain impassable for a longer period of time."

"The price of Brent crude oil could then rise towards $100 per barrel and remain at this level for some time."

"Compared to mid-February (before speculation about war began to surge), this would represent an increase of around 40%."

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

TD Securities’ Global Strategy Team expects the US Dollar to benefit from safe-haven flows as markets react to the Iranian conflict. They anticipate that geopolitical risks will drive expectations for more Fed easing and note broad but measured Dollar buying in early trading.

Safe-haven flows and policy expectations support Dollar

"Initial market reactions have shown market patience in general. We have seen broad-but-measured USD buying, gold up around $150, 10y Treasury yields about 2bps higher, and Brent hitting a high of $82bbl and currently trading down to around $78."

"The USD's safe haven status will be on full display. CHF is the only currency to outperform the USD. NOK and CAD should outperform EUR and AUD, especially with crowded positioning. USDCAD likely moves higher on the onset, with CAD to outperform AUD, EUR, SEK and GBP."

"Greenback strength notwithstanding, gold could surge as much as $200/oz on the open, with silver likely to rally, as well."

"We expect TIPS BEs to widen and Treasuries to bull steepen, with 10s likely to rally. There will be time to assess inflationary impacts on the US later, but the immediate knee-jerk will be driven by expectations for more Fed easing."

"In the upcoming week, focus will be on the NFP report on Friday, where we expect an unchanged UE of 4.3% and +90k payrolls for February. In addition to the labor market data, we will get Retail Sales, as well as ISM manufacturing and services. "

(This story was corrected to remove an outdated quote regarding Trump's 10-15 day deadline to make a deal with Iran.)

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

• GBP/USD recovers some of its early losses, still holds significant amid the US-Iran war.
• Middle East tensions will likely escalate further as Tehran pushes back hopes of negotiations with the US.
• Investors await the US ISM Manufacturing PMI data for February.

The GBP/USD pair claws back its significant early losses during the European trading session on Monday, but is still 0.6% down to near 1.3400. The pair is still under pressure as the Pound Sterling (GBP) underperforms due to risk-off market sentiment amid the war between the United States (US), Israel, and Iran.

S&P 500 futures plunged almost 1% ahead of the US markets' opening, showing depressed appetite for risky assets. At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.6% higher to near 98.20.

On Saturday, the US and Israel launched a wave of strikes against Iran, which resulted in the execution of Tehran’s 48 top leaders, including Supreme Leader Ayatollah Ali Khamenei, according to Fox News.

Meanwhile, the war is expected to escalate further as Iran’s security chief Ali Larijani has refused to come to the table for negotiations with the US on stopping the massacre.

Going forward, investors will focus on the US ISM Manufacturing PMI data for February, which will be published at 15:00 GMT. The Manufacturing PMI is expected to come in lower at 51.8 from 52.6 in January.

GBP/USD technical analysis

GBP/USD trades sharply lower at around 1.3404 as of writing. The near-term bias turns bearish as spot extends below the 20-day Exponential Moving Average (EMA), which now caps recovery attempts around 1.35. The sequence of lower lows from the mid-1.36 area confirms an immediate downtrend.

The 14-day Relative Strength Index (RSI) slipping below 40.00 after consolidating the 40.00-60.00 range for almost a month signals building downside pressure.

Initial resistance sits at the 20-day EMA near 1.3530, with a sustained break above that area needed to ease bearish pressure and reopen the 1.3650 region. On the downside, immediate support aligns with the intraday low of 1.3315. A daily close below that level would strengthen the current downswing and open the door towards the December 3 low of 1.3203.

(The technical analysis of this story was written with the help of an AI tool.)

ING’s Chris Turner says higher energy prices are forcing investors to reassess optimism on European industry and the Euro. With Investors have been overweight the Euro and European assets, EUR/USD is coming under pressure. ING sees scope for a move back toward the 1.1575–1.1650 area, while any ECB hawkishness may only offer temporary support.

Higher energy costs weigh on Euro outlook

"Higher energy prices will see investors re-appraise their view of a renaissance in European industry. That said, the global economy is in a much better position than it was when energy prices spiked in March 2022 and there is now more fiscal support than there was back then."

"After a relatively contained Asian session, EUR/USD is now starting to come under pressure in early Europe. Investors have been overweight the euro and European assets on the recovery story this year – a story that will naturally be challenged this week by higher energy prices. Unless there is some early de-escalation, EUR/USD can easily get pushed back to the 1.1575/1650 region, with outside risk to the 1.1575/1600 region."

"Investors have been right to question the safe haven status of the dollar this year, but given the nature of this shock (energy), it will be the dollar that benefits the most."

"Look out for a speech from European Central Bank President Christine Lagarde at 3:00pm CET today. It looks too early for the ECB to make a clear judgement on what the weekend's events mean for the inflation profile, but any hawkish remarks could provide some transitory support for the euro."

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