Forex: USD Weakens as Markets Await Fed Decision

Yesterday, February industrial production data were released, showing growth of 0.2% compared to the forecast of 0.1%. This points to the resilience of one of the key sectors of the national economy even amid the rapidly escalating Middle East crisis and increases the likelihood that the Federal Reserve will maintain its current monetary policy stance for an extended period. Tomorrow at 20:00 (GMT+2), investors will focus on the outcome of the interest rate meeting: the rate is expected to remain in the 3.50–3.75% range, while the market may receive signals regarding the next steps of policymakers. At present, most officials are concerned about accelerating inflation due to rising oil prices after the Strait of Hormuz was blocked by Iran’s Islamic Revolutionary Guard Corps (IRGC). Meanwhile, US consumer price dynamics are already pointing to a negative trend forming, with annual inflation at 2.4% and core inflation at 2.5% in February. Under these conditions, a prolonged pause in current monetary settings or even a return to a hawkish cycle by the end of the year looks increasingly plausible. Notably, President Donald Trump once again called on the Fed to cut borrowing costs and also said he had requested the postponement of his planned meeting with Chinese President Xi Jinping because of the ongoing Middle East conflict. Experts fear that relations between the world’s two largest economies could deteriorate again, especially since Tehran is known to cooperate closely with China, which, like many Asian countries, will now face the economic consequences of rising energy prices.

Eurozone

The euro is losing ground against the pound and showing mixed performance against the US dollar and the yen.

Today, Germany’s March ZEW index of current economic conditions was published. The survey, conducted by the Centre for European Economic Research, measures sentiment among financial analysts and focuses on key indicators such as inflation, interest rates, stock indices, exchange rates, and oil prices. The eurozone indicator fell from 39.4 points to –8.5 points, far worse than the expected 26.5 points. The corresponding index for Germany, the leading economy in the EU, dropped from 58.3 points to –0.5 points instead of the forecast 39.0 points, while the sub-index of Germany’s current economic conditions improved slightly from –65.9 points to –62.9 points. Businesses and households across the bloc are clearly alarmed by the escalation of the Middle East conflict, which has already triggered a sharp rise in energy prices and could significantly accelerate inflation while pushing the eurozone toward economic contraction. Experts are also concerned that the European Central Bank could add to the pressure if it shifts toward a more hawkish tone should consumer price growth exceed the 2.0% target.

United Kingdom

The pound is strengthening moderately against the euro and the US dollar while showing mixed dynamics against the yen.

In the absence of major economic releases, price action is being driven mainly by fundamental factors. Yesterday, UK Prime Minister Keir Starmer announced a 53.0 billion pound support package aimed at helping the most vulnerable households cope with rising fuel costs. He stressed that he would not allow energy companies to “profit from the hardships faced by citizens,” adding that the government would introduce legal mechanisms requiring excess profits to be shared with consumers. Experts note that kerosene prices, widely used for heating in the country, have risen sharply amid the Middle East conflict and are now roughly double the price of crude oil.

Japan

The yen is showing mixed dynamics against its main peers — the euro, the pound, and the US dollar.

Investors are focused on comments from Bank of Japan Governor Kazuo Ueda, who said today in parliament that core inflation is gradually accelerating and moving closer to the 2.0% target, while emphasizing that this process must be accompanied by corresponding wage growth.

Australia

The Australian dollar is strengthening moderately against its main peers — the yen, the euro, the pound, and the US dollar.

Investors and forex traders are focused on the outcome of the Reserve Bank of Australia’s monetary policy meeting, where the decision to raise the interest rate to 4.10% was passed by a margin of just one vote, with five board members in favor and four against. This suggests that further implementation of a hawkish course could face serious internal opposition. Even so, the broader economic backdrop remains supportive: inflation is still above the 2.0–3.0% target range, and in January, before the US-Iran conflict began, the consumer price index held at 3.8% year-on-year instead of easing to the expected 3.7%, trimmed inflation stayed at 3.4% versus expectations of 3.3%, and the weighted measure rose from 3.2% to 3.6%. At the same time, the labor market remains resilient, with unemployment at 4.1% despite expectations of a rise to 4.2%, while fourth-quarter GDP came in at 0.8%. At the subsequent press conference, RBA Governor Michele Bullock said all policymakers agree on the need for higher borrowing costs and differ only on timing. She added that if no action is taken now, price pressures will spread further and any later adjustment will be less effective.

Oil

Oil prices are posting moderate gains today after several US allies — Germany, Spain, and Italy — refused to send naval forces to help reopen the Strait of Hormuz. President Donald Trump has already accused those governments of ingratitude after years of economic and military support. Investors are also worried that the military operation could be prolonged: Israeli officials said yesterday that fighting may continue for at least another three weeks, while the US delegation postponed a previously planned visit to China by a month. If the Strait of Hormuz remains closed for that period, oil prices could stage a significant jump, putting the global economy under serious pressure.

Today at 22:30 (GMT+2), investors will watch weekly inventory data from the American Petroleum Institute (API). Stocks are expected to decline by 0.600 million barrels, which could provide additional support for energy prices.