Key drivers likely to impact investor risk sentiment and FX markets in March:

• Geopolitical tensions from the US/Iran conflict are lifting demand for the US dollar, as a safe haven currency.
• The conflict is also driving energy prices higher, which is adding to inflation pressures, slowing growth, and weighing on commodity currencies.
• Ongoing uncertainty from the conflict is creating an uneven global outlook, leading central banks to take different policy paths and shifting interest rate expectations across major economies.

EUR | Euro

The euro weakened against the US dollar as rising energy costs and global tensions hurt confidence. Its direction now depends on whether the situation improves or drags on, keeping pressure on Europe’s economy.

At the start of March, EURUSD was trading around 1.18. However, the US attacks on Iran sent the currency pair into a sharp downturn as the month went on, dropping close to 1.14 on March 13. Like many other economies, the rising cost of energy has caused concern that growth could grind to a halt in the Eurozone, and the European Central Bank (ECB) could be forced to raise interest rates should the conflict continue.

For much of March and early April the price of Brent Crude has driven volatility for the EURUSD pair. As oil prices rise, the euro strength falls, and vice versa. Market sentiment suggests that if a lasting peace between US and Iran can be found quickly, EURUSD may increase towards US$1.20 again. Unfortunately, if the conflict continues for several months and energy prices are pushed even higher, a move towards $US1.10 is more likely.

At time of writing, the European Central Bank is unlikely to hike rates at its April 30 interest rate decision, but an interest rate hike could be on the cards for June if the situation in the Middle East is not resolved.

Expected ranges:

• EURUSD 1.1415–1.1920
• EURGBP 0.8615–0.8770

GBP | Sterling

The pound fell against the US dollar as global tensions and rising energy costs weighed on growth. While recent developments offered some relief, uncertainty still clouds the outlook for the UK economy.

The pound continues to lose ground against the US dollar due to the ongoing US/Iran conflict. Since late Feb GBPUSD has dropped from around US$1.3570 to a low of US$1.3158 on March 31. The pound’s downturn is largely driven by the jump in energy prices, which could impact economic growth depending on how long the conflict continues.

The dialling down of the rhetoric by US President Trump during the ceasefire announcement on April 7 saw GBPUSD push back up towards US$1.35. A knock-on effect of the rise in Brent Crude and wholesale gas prices is that inflation will likely rise over coming months, which could lead the Bank of England (BoE) to potentially raise interest rates.

For the time being, the BoE will likely maintain policy, so it is likely that there will be no rate changes at the April 30 interest rate decision unless the situation develops in the Middle East. Should free flow of shipping return, and energy prices drop, then we may see interest rate cuts in the second half of the year.

Expected ranges:

• GBPUSD 1.3100–1.3700
• GBPEUR 1.1400–1.1610

USD | United States dollar

The US dollar eased as global tensions cooled, but a strong economy and steady jobs kept it supported. Future moves will likely depend on inflation, employment data, and any return of global uncertainty.

The US dollar has softened slightly in recent sessions following a period of elevated safe haven demand, driven by the US/Iran conflict. The easing of geopolitical tensions has reduced demand for defensive positioning, leading the USD to stabilise at more normal levels.

Domestically, the United States economy remains comparatively resilient. Strong consumer activity and a stable labour market continue to support the economy, reinforcing the Federal Reserve’s (Fed) cautious approach to policy easing. Market pricing has adjusted accordingly, with expectations for interest rate cuts being pushed further out as Fed policymakers maintain a “higher for longer” narrative.

Recent communication from Federal Reserve officials has continued to stress the need for confidence that inflation is sustainably returning to target before any meaningful policy shift is considered. This stance has supported US yields and, by extension, the US dollar, particularly against currencies where central banks are perceived to be closer to easing cycles.

Over the coming weeks, the USD direction is likely to remain highly reactive to incoming inflation and labour market data. Any change from the current direction of economic resilience could see shifts to rate expectations, while continued global uncertainty may still drive periodic demand for the US dollar as a preferred reserve and liquidity currency.

Expected ranges:

• DXY 97.969–100.643

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