United States
The US dollar has experienced a mixed session following escalating geopolitical tensions in the Middle East. The collapse of US-Iran negotiations and the announced blockade of Iranian ports represent an unexpected escalation that markets have only partially priced in. The greenback has strengthened broadly, though the moves remain relatively restrained at this stage. The Dollar Index reflects this firmness, with the currency gaining ground against most G10 peers, though the advance is being tempered by safe-haven flows into US Treasuries and the flight-to-quality dynamic that typically accompanies geopolitical risk events.
On the economic data front, the US is scheduled to release March existing home sales today, though these figures historically have minimal market impact. Existing home sales have remained relatively flat over the past two years following the post-pandemic surge in 2020. The three-month, six-month, and twelve-month moving averages have converged in a narrow band between 4.07 and 4.13 million sales on a seasonally adjusted annual rate basis, suggesting continued stability in the housing market at these depressed levels. Looking ahead, March Producer Price Index data will arrive tomorrow, followed by the Federal Reserve’s Beige Book on Wednesday, which will provide additional color on regional economic conditions and business sentiment.
The 10-year US Treasury yield has ticked higher today, moving almost two basis points higher to break above the 4.33% level. This modest increase reflects the dual pressures of geopolitical risk premium and the market’s continued assessment of the Fed’s near-term policy trajectory. The yield curve continues to be shaped by expectations around the timing and magnitude of potential rate cuts later in the year, though the recent strengthening in economic data and persistent inflation readings have pushed out expectations for aggressive easing.
Eurozone
The euro has experienced significant volatility in response to the weekend’s geopolitical developments. EUR/USD rose to almost $1.1740 ahead of the weekend, marking its best level since March 2 when markets first responded to the onset of Middle East hostilities. This represented the culmination of a five-day rally, with the euro settling slightly below $1.1725 at the close. However, the failed US-Iran negotiations and the announced blockade of Iranian ports caught short-term positioning the wrong way, and the euro slipped below $1.1660 almost immediately when markets opened today. As European trading sessions commenced, the pair gradually recovered to $1.1700 and has since consolidated above $1.1680, finding support from the European Central Bank’s relatively hawkish monetary policy stance and the region’s improving economic data.
The technical picture suggests that the euro has encountered resistance near the $1.1740 level, which now represents a key ceiling for near-term trading. The five-day rally that preceded the weekend pullback indicates underlying bullish momentum, though the rapid reversal suggests that some profit-taking and position squaring is occurring at elevated levels. The ECB’s monetary policy remains a key driver for the euro, with the central bank maintaining its relatively restrictive stance in the face of sticky inflation readings. Eurozone CPI data continues to be monitored closely by market participants for any signs of disinflationary pressures that might prompt the ECB to reconsider its policy path.
Option expiries continue to influence near-term price action, with various strikes and expiration dates providing technical levels around which trading has consolidated. The euro’s performance remains sensitive to broader risk sentiment, with geopolitical developments in the Middle East providing an additional layer of complexity to the outlook.
United Kingdom
Sterling has demonstrated notable resilience amid the geopolitical turmoil, settling near $1.3460 last week, which represented its highest closing level since the Middle East war began. This performance reflected a nearly 2% gain for the week, marking sterling’s second-best weekly performance of the year to date. However, the disappointing weekend developments related to the Iran situation pushed cable down to almost $1.3380 in early trading today. The pair subsequently recovered to almost $1.3435 but faces meaningful headwinds in attempting to extend gains further from these levels.
The technical backdrop for sterling remains constructive from a longer-term perspective, with the currency having established higher lows and higher highs over recent weeks. However, near-term resistance is appearing around the $1.3460 level, with option expiries for GBP 450 million at the $1.3545 strike expiring today providing a potential cap on upside moves. The Bank of England’s monetary policy stance remains a key factor supporting sterling, with the central bank maintaining its relatively restrictive posture and signaling that rate cuts may come later in the cycle than some other major central banks.
UK economic data, including GDP figures and employment statistics, continue to be monitored for signs of how quickly the British economy can adjust to the higher interest rate environment. The resilience of sterling despite broader market risk-off sentiment suggests that safe-haven flows and expectations for continued BOE hawkishness are providing underlying support to the currency.
China
The Chinese yuan has finished the previous week on a firm note, with the greenback approaching but holding above the multiyear lows recorded in the middle of the prior week near CNH 6.82. The dollar was initially bid in early Asian trading today and traded slightly above CNH 6.8435, but has since trended lower and is knocking on CNH 6.83 in the European morning session. The People’s Bank of China has been actively guiding the yuan higher through its daily fixing mechanism, though the broad dollar strength that typically accompanies geopolitical risk events has made aggressive PBOC support less likely today.
The dollar’s reference rate was set today at CNY 6.8657, compared to CNY 6.8654 at the previous close, reflecting a marginally firmer tone in the official fixing. The PBOC’s guidance has been consistently supportive of yuan appreciation, reflecting the central bank’s desire to support the currency and potentially offset some of the capital outflows that have characterized recent months. The technical backdrop for USD/CNY suggests that support is emerging around the 6.83 level, with resistance developing near the 6.85 area.
On the economic data front, China’s March lending figures came in weaker than expected, with aggregate financial social financing rising by CNY 5.2 trillion against a median forecast in Bloomberg’s survey of CNY 5.6 trillion. Corporate bond issuance increased and helped offset the decline in government bond sales, suggesting a shift in the composition of credit flows. Looking ahead, China is expected to report March trade figures tomorrow, with the trade surplus anticipated to have risen to around $107.5 billion from nearly $91 billion in February, reflecting improved export demand and continued strength in the manufacturing sector.
Japan
The greenback finished the previous week firmly against the yen, though the technical picture has become more nuanced in recent sessions. The dollar spent much of the prior two trading sessions below the 20-day moving average but settled above it before the weekend, with the level clustering around JPY 159.20. Nevertheless, the dollar’s second consecutive weekly decline—the first back-to-back weekly drop since the end of January—would appear to reduce the risk of near-term intervention by Japanese authorities. This sequential weakness in the dollar-yen pairing has been notable given the typical safe-haven flows into yen during periods of geopolitical risk.
In early dealings today, the dollar extended its gains to JPY 159.85, reflecting the initial risk-off sentiment following the weekend’s Middle East developments. However, the pair has remained confined to a narrow range and has held above the JPY 159.55 support level. The technical backdrop suggests that traders are closely monitoring the 20-day moving average as a key pivot point, with breaks above or below this level potentially signaling shifts in near-term momentum. Options for approximately $650 million at the JPY 159.50 strike expire today, providing a technical level around which trading may consolidate.
The Bank of Japan’s policy stance remains accommodative relative to other major central banks, with the BOJ maintaining its yield curve control framework and negative interest rate policy. Recent meeting minutes and policy communications continue to suggest that the BOJ is in no rush to tighten policy, though the accumulation of inflation data and potential shifts in global monetary policy may eventually force a reassessment. Tokyo CPI data and other Japanese economic indicators, including industrial production, retail sales, and unemployment figures, continue to be monitored for signs of economic momentum and inflationary pressures. The intervention risk for the yen remains present given the level of USD/JPY, though the recent string of weekly declines in the dollar suggests that authorities may be taking a more patient approach.
Canada
The US dollar initially extended its losses for a fifth consecutive session against the Canadian dollar, approaching the CAD 1.3800 level and trading below both the 20-day and 200-day moving averages in North American trading ahead of the weekend. However, the recovery in risk sentiment and the dollar’s broader strength in early Asia Pacific activity today have reversed this trend. The recovery stalled near CAD 1.3840 before the weekend, but gains were quickly extended in early Asia Pacific trading to almost CAD 1.3880. Options for $900 million at the CAD 1.39 strike expire today, providing a technical level that may influence near-term trading dynamics. This month’s high has been recorded near CAD 1.3950, suggesting that the pair remains in a trading range with defined support and resistance levels.
On the economic calendar, Canada is scheduled to report building permits today, though these figures typically have limited market impact. More importantly, Canada is holding three byelections that will likely secure a parliamentary majority for Prime Minister Carney’s Liberals. With the latest defection, the Liberals are one seat shy of a majority and are favored to win at least two of the byelection contests. The outcome of these elections could have implications for policy direction and market sentiment toward Canadian assets.
The Bank of Canada’s monetary policy outlook remains a key driver for USD/CAD, with the central bank having signaled potential rate cuts later in the year if inflation continues to moderate. The recent economic data from Canada, including GDP figures and employment statistics, continue to be assessed by market participants for signs of how quickly the Canadian economy is adjusting to the higher interest rate environment.
Australia
The Australian dollar consolidated ahead of the weekend, holding below Thursday’s high of $0.7095 by just one one-hundredth of a cent according to Bloomberg data. The session low, recorded in the European morning, was near $0.7055. The Aussie’s approximately 2.5% gain last week represented its largest weekly advance since late January, suggesting strong underlying momentum. However, the Aussie gapped lower today in thin early turnover, falling to nearly $0.7055 before finding bids from market participants. The pair subsequently recovered and filled the opening gap that extended to the pre-weekend low, though intraday momentum indicators are warning of the risk of a setback toward $0.7020.
Options for A$ 711 million at the $0.7050 strike expire today, providing a technical level around which trading may consolidate. The technical backdrop for AUD/USD suggests that traders are closely monitoring the $0.7050 level as a key support, with breaks below this level potentially triggering further weakness toward $0.7020 and beyond. The Reserve Bank of Australia’s monetary policy stance, recent meeting minutes, and Australian economic data, including private credit growth and other indicators, continue to shape the outlook for the Aussie.
The Australian dollar remains sensitive to broader risk sentiment and commodity prices, with the currency typically strengthening during risk-on periods and weakening during flights to safety. The geopolitical developments in the Middle East may provide headwinds for the Aussie given the typical safe-haven flows into the yen and Swiss franc during such periods.
Emerging Markets
The Mexican peso has been demonstrating notable strength, with a five-day advance coming into today’s session. The peso appreciated by approximately 3.3% last week and reached its best level since March 2, when the dollar knocked on MXN 17.25 before the weekend. The peso settled near MXN 17.2270 at the start of the war period, representing the strongest performance in the region last week. However, the risk-off mood following the weekend’s geopolitical developments is likely to snap the peso’s five-day rally. Because the peso is among the nearest emerging market currencies to 24-hour-a-day trading activity, it is sometimes used as a proxy for less accessible emerging market currencies. The dollar reached almost MXN 17.4450 initially today but has ground down to nearly MXN 17.3650 in European turnover. Intraday momentum indicators are getting stretched, and nearby support is seen ahead of MXN 17.35.
The Brazilian real gained approximately 2.7% last week and rose to its best level since early 2024, with the US dollar falling slightly below BRL 5.01. The Colombian peso eked out a gain of less than 0.5%, though this was sufficient to reach its best level since early February, with the US dollar falling slightly through COP 3625. However, the risk-off sentiment is likely to pressure these emerging market currencies more broadly.
The Indian rupee has been under pressure following the jump in crude oil prices, which has offset some of the gains that had been spurred by recent currency controls. The dollar settled near INR 92.73 at the end of last week and gapped higher today to reach almost INR 93.41, its highest level since April 2. India reported that March CPI rose to 3.40% from 3.21% in February, marking the highest level since last March. The World Bank expects inflation to rise to 4.9% in the fiscal year that began on April 1, compared to its pre-Middle East war forecast of 4.0%. The World Bank sees growth slowing to 6.5% from around 7.2% in the fiscal year that just ended, though the Reserve Bank of India projects 6.9% growth this year and 4.6% CPI. A national holiday closes Indian markets tomorrow.
The Hungarian forint has emerged as the strongest currency in the world today following Prime Minister Orban’s stunning defeat in the weekend election. The forint is up nearly 2% against the US dollar and around 2.3% against the euro amid speculation that Budapest’s pariah status in Europe will end and it will take steps to free up EU funds. This represents a significant repricing of political risk for the currency and reflects market expectations for a shift in policy direction.
Global Markets
Equities are mostly lower today, though there were some notable exceptions in the Asia Pacific region, where China, Taiwan, and some smaller bourses gained. The MSCI Asia Pacific Index rose 6% last week and snapped a five-week losing streak. Europe’s Stoxx 600 is off approximately 0.75% today, though it rose by 3% last week, marking its third consecutive week of gains. US index futures are trading 0.5% to 0.6% lower, following last week’s strong performance in which the S&P 500 rose 3.5% and the Nasdaq gained nearly 4.7%.
Benchmark 10-year yields are firmer today across major markets. They rose five basis points in Australia and New Zealand, and two basis points in Japan. European yields are mostly 1 to 2 basis points higher, and the 10-year US Treasury yield is almost two basis points higher, poking above 4.33%. This broader move higher in yields reflects the market’s reassessment of growth and inflation risks in light of the geopolitical developments.
Gold gapped lower and fell to $4644.50 before recovering and filling the gap that extended to the pre-weekend low near $4731. The precious metal stalled slightly shy of $4740, suggesting that buyers are defending the level but that significant upside momentum remains elusive. Silver also gapped lower and filled the opening gap before being capped in front of $75. The behavior of precious metals reflects the tension between safe-haven flows and the potential for higher real yields in the near term.
May WTI crude oil gapped higher following the weekend’s geopolitical developments. The pre-weekend high was near $100.40, and today’s low has been about $101.90. The contract reached nearly $105.65 and is around $104.40 in late European morning turnover, reflecting the market’s pricing of geopolitical risk premium. The potential for Iranian port blockades and the risk of escalation through the Bab-el-Mandeb strait, which could disrupt shipping and neutralize the Saudi east-west pipeline that bypasses the Strait of Hormuz, are providing support to oil prices. The geopolitical premium in crude oil prices is likely to persist until clarity emerges regarding the trajectory of US-Iran tensions and their potential impact on global energy supplies.
