USD: Dollar rally hinges on Iran
The dollar has whipsawed in recent sessions amid signs of de‑escalation – floated unilaterally by the US – but met with little comparable diplomatic urgency from Iran. The push for diplomacy reflects the growing pressure on the US administration to resolve the conflict as the economic toll mounts. Washington has drafted a 15‑point plan aimed at bringing the war with Iran to a close, although there are few details around the proposal.
Markets remain hostage to shifting headlines, with oil and the dollar paring some gains on hopes of a diplomatically engineered resolution. But they have also recognised that Iran holds greater leverage in energy markets and remain laser‑focused on the Strait of Hormuz. Without movement from Tehran, any dollar sell‑off, oil drop, or broader improvement in risk sentiment is likely to be short‑lived.
Reports also emerged that Iran’s neighbours are considering joining the US‑Israeli war effort, following Iranian attacks on ports, energy facilities, and airports across the Gulf since the conflict began (28 February). It may be that this added military pressure, combined with Washington’s search for an off‑ramp, may push Iran toward a diplomatic path as well.
On the data front, sentiment indicators have begun to reflect conflict‑related drag. S&P PMIs showed US business activity slowing in March to an almost one‑year low: Composite PMI slipped to 51.4 from 51.9, and Services to 51.1 from 51.7. Manufacturing remained more resilient, rising to 52.4 from 51.6 (see Euro section below for reasoning). The low‑growth, high‑price backdrop mirrors other economies’ recent PMI releases, pointing to a more synchronised stagflationary shift amid the ongoing conflict.
The dollar index (DXY) remains supported by the 21‑day moving average at 99.090, signalling intact short‑term bullish momentum and a market still demanding more on the diplomatic front. Yet with oil hovering near $100 a barrel, the dollar has struggled to find fresh fuel since hitting a one‑year high of 100.540 on 13 March. If de‑escalation signals build concretely, a break below the 21‑day MA looks therefore justified.
EUR: Euro stuck in diplomatic limbo
EUR/USD continued to tread water near the 1.16 mark, with the 21 day moving average (1.1609) continuing to push back on any attempt to break higher as the diplomatic route embarked on by the US still feels unconvincing to markets. After hitting August 2025 lows earlier this month, the pair has recovered on more stable energy prices and an increasingly hawkish ECB stance. Even so, EUR/USD remains 2% lower on a month to date basis.
On the data front, and in a similar vein to the US, eurozone PMIs released yesterday showed weakening services activity and rising prices. Manufacturing proved more resilient, as expected: built up inventories and pre planned production cycles need to unwind before any deterioration becomes visible. The sentiment hit is also more likely to show up in services, as discretionary categories (travel, hospitality, leisure) – which outweigh discretionary manufacturing – are the first to be cut by households when conflict driven uncertainty rises. The data offers early insight into the economic impact of the conflict. Looking ahead, monitoring hard indicators such as industrial production and retail sales will be key to gauging how sentiment translates into real economy outcomes.
In the meantime, the euro continues to trade headline to headline, as markets impatiently await clearer signals from Iran. On more concrete signs of de escalation, immediate targets sit at the 21 day MA (1.1609), followed by the 10 March high at 1.1667. The 200 day MA at 1.1679 is the next marker; a sustained break above it would help re establish a more constructive long term momentum profile for EUR/USD.
GBP: Rebound built on shaky foundations
Sterling has rebound sharply against all of its major peers this week, with standout gains against commodity-linked FX such as the NOK and AUD. This makes sense given the sharp fall in oil prices. The pound has also strengthened against safe haven peers like the CHF, but interestingly has also outperformed pro-cyclical and risk-sensitive peers like the SEK and EUR.
Part of this reflects the tentative signs of de‑escalation in the Middle East, which have helped restore risk appetite and naturally support sterling given its high‑beta characteristics. But the improvement in market sentiment appears to have unlocked the rates channel more cleanly too, allowing the BoE’s hawkish repricing to feed through into FX with greater force.
Ultimately, the hawkish repricing of BoE rate expectations has supported the pound via the yield channel. But we remain sceptical about how durable that support can be. Rate differentials are undeniably a key driver of exchange rates, yet the source of those rate expectations matters just as much as the level. In this case, the market is effectively pricing a tightening cycle born out of stagflationary pressure, not stronger UK fundamentals.
UK inflation data this morning landed exactly in line with expectations, but the details were less comforting. Services inflation — the BoE’s preferred gauge of domestic price pressure — came in slightly hotter than forecast, reinforcing the idea that underlying inflation persistence has not fully broken. Crucially, these figures reflect February conditions, before the Middle East conflict erupted and before the latest surge in energy prices began feeding into the outlook. In other words, the data offers a snapshot of the pre‑war disinflation path — not the world the MPC is now operating in.
Market snapshot
Table: Currency trends, trading ranges & technical indicators
Key global risk events
Calendar: March 23-27
All times are in GMT
Have a question? [email protected]
*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.
