USD: ‘Petro-dollar’ bid endures
The primary transmission mechanism for rates and FX last week stemmed from a combination of hawkish central bank stances, rising oil prices, and broader headline-driven noise. In FX after months of calls for a dollar downturn, the US dollar bid looks more entrenched. Even though President Trump has extended the energy attack deadline by 10 days, markets are on edge into the weekend. The greenback is finding firmer footing, extending gains for a third straight session as ambiguous Iran headlines revive demand for classic havens. Price action remains choppy, but momentum has been building throughout the week. The daily chart now shows that in this tape, dips keep getting bought.
Talks between Tehran and Washington remain a big question mark, and FX isn’t buying any ‘TACO’, ‘Trump-put’, off-ramp or de-escalation trade. Brent hovering around $106 a barrel caps USD downside, tying currency moves tightly to the energy market and the persistent conflict premium. At the same time, the US dollar is shining as a classic safe-haven for investors. With global tensions running high, many market participants are sticking to the greenback for stability. The post-Davos hate is momentarily forgotten.
Compounded to safe-haven dynamics, there’s a fundamental change in how the USD reacts to oil shocks in recent years. We are no longer seeing the traditional scenario where rising commodity prices automatically lead to a weaker American currency. This transformation comes down to a massive structural shift in the American economy. Over the last decade, the US evolved from a heavy importer of energy to a net exporter. A recent Bank for International Settlements paper highlights this exact phenomenon, noting that “higher commodity prices now tend to raise the US terms of trade, rather than lowering them.”
As war-driven uncertainty reactivates haven demand, elevated oil prices reinforce petro-dollar dynamics. The energy shock in the spot market sustains a dollar bid, as needs for barrels equate demand for dollars. Unless there are clear de-risking signals, positioning into the weekend likely stays defensive.
EUR: Euro whipsawed by conflict signals
EUR edged lower by 0.3% against USD yesterday as doubts grew over any swift end to the conflict in the Middle East. Both the US and Iran have outlined conditions for ending the war, with little overlap. Visibility on negotiations remains limited and contrasting messages from both sides are complicating the picture, prompting markets to price out a rapid de‑escalation.
EUR/USD fell for a third straight day, with oil surging to $108 a barrel driving the latest round of selling. This added to Wednesday’s partial unwind of conflict‑driven hawkish repricing, when de‑escalation hopes were stronger. The pair opened today’s session on a calmer footing after reports that Trump has again pushed back his energy attack‑pause by 10 days, clearly signalling the US commitment to finding an off‑ramp. Even so, the news may matter little to markets, which have learned to treat such headlines cautiously until there is firmer proof that diplomacy is gaining traction.
EUR/USD has so far avoided a retest of the early‑March low at 1.1411 and has returned above 1.15, a solid support level since the post‑Liberation Day trading range. We see the pair consolidating in the 1.14–1.15 zone on broken diplomatic dialogue, and therefore too weak to challenge the 21‑day moving average at 1.1582. A break lower 1.1411 becomes our base case if recent diplomatic efforts are formally abandoned.
GBP: Fragile resilience as energy shock and weak data collide
Sterling has erased gains from earlier this week as the geopolitical backdrop turns darker again. The tepid signs of de‑escalation that briefly lifted markets have faded, leaving equities under pressure, energy prices still elevated and risk appetite fragile — a combination that rarely favours a high‑beta, energy‑importing currency like the pound.
GBP had held up better than most G10 currencies through March, with GBP/USD down only around 1% versus a 2%+ slide in EUR/USD, and GBP/EUR pushing to seven‑month highs above 1.16. That resilience was built almost entirely on the hawkish repricing in UK rates, with markets shifting from expecting cuts to pricing two BoE hikes this year. The yield channel has done the heavy lifting for sterling.
But the domestic data is now turning, and the macro foundation beneath that rates‑driven support is weakening. UK consumer confidence has rolled over sharply: the BRC’s measure plunged in March and GfK fell to ‑21, still better than expected but consistent with a household sector under strain. Retail sales have declined for the first time since November, signalling that consumers were already retrenching even before the Iran conflict clouded the outlook. As Megan Greene noted this week, the UK enters this shock weaker than it was heading into 2022 — with higher rates, thinner savings buffers and less fiscal space.
Layer on top the renewed surge in energy prices and the lack of a credible peace path, and the UK’s stagflation risk profile becomes harder to ignore. The market may still reward the BoE’s hawkish stance, but that support is becoming more conditional as growth momentum softens.
For GBP/USD, this leaves the balance of risks tilted lower. Elevated energy prices, shaky risk sentiment and a deteriorating domestic backdrop are a difficult mix for sterling. Without a sustained easing in geopolitical tensions — and a clear break lower in oil — rallies are likely to fade, keeping the pair vulnerable to a move back toward recent lows.
Market snapshot
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Calendar: March 23-27
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
