USD: Dollar takes a pause at 10-month high
Yesterday, major US equity indexes fell as WTI oil settled above $100 per barrel. Treasury yields also slipped after Fed Chair Powell noted that inflation expectations remain “well anchored,” easing trader concerns over a potential rate hike this year.
In FX the US dollar bid persists supported by elevated oil prices, with renewed speculation of a resolution to the conflict, according to the WSJ. After 5 consecutive sessions up, the greenback is finding strong resistance at its highest level since May 2025, coinciding with the 10-month trading ceiling, as ambiguous Iran headlines keep demand for the classic haven. Even though tension in markets persists as seen by the fear index (VIX), trading just below the 30s level, the momentum that has been building throughout the last few days is taking a pause.
Talks between Tehran and Washington remain a big question mark, and FX isn’t buying any ‘TACO’, ‘Trump-put’, off-ramp, 10-day delay or de-escalation trade. Regardless of negotiations, key signals the market want clarity on are, who controls the Strait of Hormuz and whether military action will be required to secure transit, tying currency moves tightly to the energy market and the persistent conflict premium.
As global tensions stay high, many market participants are sticking to the greenback for stability, momentarily forgetting the post-Davos hate, the debasement and de-dollarization narratives from just weeks ago. Will the US risk policy premium return once the conflict ends and the oil premium evaporates, pushing FX into a big mean reversion? Time will tell.
Compounded to safe-haven dynamics, there’s a fundamental change in how the USD reacts to oil shocks in recent years. 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.”
War-driven uncertainty and safe-haven demand, coupled with elevated oil prices, are reinforcing petro-dollar dynamics. The spot market energy shock sustains a dollar bid, as the global need for barrels translates directly into dollar demand. While rumors at key resistance levels are currently propping up risk sentiment, the “conflict premium” is unlikely to evaporate without definitive de-risking signals.
CAD: Economic momentum fades to a crawl
Canada’s economic growth slowed to a crawl at the start of 2026. Real GDP edged up just 0.1% month-over-month in January, stepping down from December’s 0.2% pace, while year-over-year growth cooled to 0.6%. While goods-producing industries managed a modest 0.2% gain, the services sector completely flatlined. Significant manufacturing pullbacks, heavily driven by extended winter shutdowns at Ontario auto plants, severely dragged down the country’s overall economic momentum.
Despite the manufacturing slump, a few bright spots kept the economy afloat. The mining, quarrying, and oil and gas extraction sector saw a healthy 1.2% rebound, fully offsetting December’s decline. The construction sector also rebounded, expanding by 1.1% on widespread gains. However, extreme winter storms severely impacted transportation and warehousing, and the real estate sector posted its first decline in 10 months. Looking ahead, an advance estimate points to only a modest 0.2% GDP increase in February, signaling that internal economic engines remain sluggish.
This sluggish domestic performance has taken a visible toll on the Canadian dollar, pushing the Loonie down to a three-month low against the greenback, closer to the 1.40 once again. Interestingly, this internal economic deceleration is now weighing much more heavily on the currency than the support it typically receives from favorable terms of trade in energy. Because these weak domestic fundamentals are overshadowing the strong oil and gas rebound, the USD/CAD has now surged for seven consecutive sessions, climbing all the way from below the 1.36s to reach as high as 1.3945. As the US Dollar takes a pause at key resistance levels, a move closer to the 1.40 will depend on geopolitical tension, US Dollar reaction and headlines coming from the Middle East, as this data aligns with current sentiment around the Canadian economy.
GBP: Five-day slide puts 1.30 back in view
GBP/USD has now fallen for five consecutive sessions, shedding roughly 2% and trading almost 5% below its YTD high. Yesterday’s move was particularly significant: the pair finally broke below the 1.32 support we had flagged, raising the risk of a test of the psychologically important 1.30 handle — a level sterling hasn’t breached in almost a year. With risk appetite deteriorating and energy prices still elevated, the near‑term bias remains skewed lower.
The geopolitical backdrop is doing sterling no favours. Markets are grappling with contradictory signals from Washington. On one side, reports suggest President Trump is prepared to escalate militarily, including a potential operation to extract uranium from Iran and even a strike on Kharg Island, the country’s critical oil‑loading hub. On the other, he claims Tehran is allowing more tankers through the Strait of Hormuz, hinting at progress in negotiations. The result is a volatile, two‑way uncertainty that keeps the dollar supported ultimately for now, leaving GBP/USD stuck in a grinding downtrend.
Indeed, sterling’s weakness this year has been most pronounced against commodity‑linked currencies, where the terms‑of‑trade shock is biting hardest. From their 2026 peaks, GBP’s largest drawdowns have come against NOK, AUD, CAD and USD — all currencies with either direct energy exposure or strong commodity‑beta. In contrast, GBP has held up better against low‑yielding or Europe‑centric peers, underscoring how the current environment is punishing energy importers while rewarding economies with commodity buffers.
Domestically, the data offers little offset. The Lloyds Business Barometer showed headline confidence holding steady in March, but the underlying picture is more uneven, with sentiment diverging sharply by firm size. This comes at a time when the UK is estimated to face the largest growth hit among major economies from the US–Iran conflict, reflecting its acute exposure to energy imports and already‑soft underlying momentum.
Consumer‑side indicators reinforce the fragility. Confidence has deteriorated, retail sales have slipped back into contraction and households appear to be tightening spending even before the latest geopolitical shock fully feeds through. The UK enters this phase on weaker footing than in 2022 — with higher rates, thinner savings buffers and less fiscal insulation — making it more vulnerable to an externally driven inflation shock.
Against this backdrop, sterling’s earlier resilience looks increasingly difficult to sustain. With the break below 1.32 now confirmed, 1.30 becomes the next key downside target. Unless geopolitical tensions ease meaningfully, energy prices follow, and risk sentiment improves, rallies are likely to be shallow, and GBP/USD remains at risk of extending its decline in the days ahead.
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Calendar: March 30 – April 3
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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.
