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

• Central bank policymakers are adjusting interest rate expectations to manage inflation and stabilise currencies amid global uncertainty.
• The US/Iran conflict has escalated geopolitical uncertainty, which is pushing investors toward safe-haven currencies and adding volatility to FX markets.
• The conflict is causing disruptions to key oil and gas routes, driving higher energy costs, influencing inflation and currency performance.

EUR | Euro

The euro has come under pressure as the US/Iran conflict disrupts energy supplies, driving up oil and gas costs and raising concerns about economic growth and potential interest rate changes in Europe.

Like most currencies, the euro has been hit by the recent US/Iran conflict. A key impact is the price of oil. With the European bloc trying to wean itself off Russian oil and gas imports, it had looked for alternative sources of fossil fuels, particularly from the Middle East. With around 20% of all oil passing through the Strait of Hormuz, the virtual closure of shipping in the region has led Brent crude to spike above $100 a barrel. There has also been a halt to LPG from Qatar which led to European Union (EU) natural gas prices to double in a week. This upswing in prices could impact growth in the EU depending on how long the conflict lasts for.

With the European Central Bank (ECB) holding interest rates steady at 2.15%, there could be calls to raise rates sooner than previously thought should the conflict rumble on for longer than expected. The next rate decision from the ECB is due on March 19 and investors will be eager for comments from ECB Bank Chief, Christine Lagarde. The impact of rising energy costs may not be felt for a few more weeks, but could also impact the German manufacturing sector which had been showing signs of recovery since the post Covid price rise shock. Due to the conflict, the future direction for the EUR is hard to predict. A swift resolution could see the EUR stabilise, but if the conflict continues, pressure could remain.

Expected ranges:

• EURUSD 1.14–1.1820
• EURGBP 0.8605–0.8740

GBP | Sterling

The pound weakened as the Bank of England kept interest rates steady despite expectations of a cut. Ongoing Middle East tensions and rising energy costs could influence future rate decisions.

The pound slipped throughout February as the Bank of England (BoE) narrowly decided to keep interest rates on hold at their February 5 interest rate decision.

The GBPUSD pair began February around US$1.38 and ended the month around US$1.34. Members of the BoE’s Monetary Policy Committee voted 5-4 in favour of holding rates at 3.75%, closer than the 7-2 that had been predicted. Many analysts expected there would be a 0.25% reduction at the March 19 meeting, however, the recent US/Iran conflict could mean Monetary Policy Committee members may tempted to hold steady again. It will depend on how high oil prices go, which would cause upward pressure on inflation. Recent data like the Retail Sales, Services and Manufacturing PMI surveys, and record tax receipts have helped improve the economic outlook of the UK, as well as inflation falling from 3.4% to 3% y/y.

Looking ahead, developments in the Middle East will be a key area of interest. Should the war cause energy prices to keep rising, then the Bank of England may decide to hold rates again when a cut was being priced in.

Expected ranges:

• GBPUSD 1.3509–1.3814
• GBPEUR 1.1440–1.1611

USD | United States dollar

The US dollar has strengthened as investors seek safety during global uncertainty. Strong economic outlook and higher interest rate expectations continue to support the currency, keeping the dollar central to global markets.

The US dollar has strengthened in recent weeks as global capital searches for safe havens amid renewed geopolitical tensions and volatility in the energy markets. The sharp rise in crude prices following the escalation in the Middle East has revived concerns that the final phase of the global disinflation cycle may prove uneven. This has tempered expectations for near-term Federal Reserve easing and pushed US Treasury yields modestly higher. At the same time, the structural resilience of the US economy continues to attract international capital. Growth expectations remain stronger than in most developed markets, while the depth and liquidity of US financial markets reinforce the dollar’s central role during periods of global uncertainty.

Looking ahead, we’re likely to see the relative growth for the US dollar, and policy divergence rather than isolated economic data. Many major banks, including Goldman Sachs, note that while the US dollar remains structurally well supported in the short term, the broader global cycle may gradually narrow the US growth advantage over time. As other economies stabilise and monetary policy differentials begin to converge, capital allocation could slowly diversify beyond US assets. For now, geopolitical uncertainty, energy volatility and the continued depth of US capital markets suggest the dollar is likely to remain a central anchor within global currency markets.

Expected ranges:

• DXY 97.561–99.695

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