US Dollar Shows Mixed Dynamics as Markets Monitor Iran Conflict

Earlier, President Donald Trump hinted that the active phase of military operations in Iran could soon end, stating that the main objectives of the operation had already been achieved. This initially restored investors’ interest in risk assets. However, the situation has since changed, as Iranian authorities have refused diplomatic contacts and continue to block the Strait of Hormuz.

Under these circumstances, experts believe that a rapid peace agreement is unlikely. Many analysts are now considering an extreme scenario in which the conflict could last at least several months. Such a development would likely disrupt the global energy infrastructure, potentially leading to stagflation in major economies and forcing many financial regulators to raise interest rates.

Today at 14:30 (GMT+2), market participants will focus on the February inflation report. On a monthly basis, the Consumer Price Index is expected to rise from 0.2% to 0.3%, while on an annual basis it is projected to remain around 2.4%, above the Federal Reserve’s 2.0% target. It is worth noting that despite weak February labor market data — where unemployment rose from 4.3% to 4.4% and employment declined by 92.0K compared with a forecast of a 58.0K increase — most Federal Reserve officials still favor maintaining the current monetary policy for an extended period. Some policymakers, including Cleveland Fed President Beth Hammack, have even suggested the possibility of further tightening if inflationary pressure does not stabilize by the end of the year.

Eurozone

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

Germany released February inflation data today: on a monthly basis, the Consumer Price Index increased from 0.1% to 0.2%, while the annual figure slowed from 2.1% to 1.9%. The harmonized CPI rose from –0.1% to 0.4% monthly and declined from 2.1% to 2.0% annually, remaining close to the European Central Bank’s 2.0% target. However, analysts warn that the situation could worsen if the US-Iran conflict lasts longer than expected and energy prices continue to rise. Bundesbank President Joachim Nagel and Bank of France Governor François Villeroy de Galhau have already acknowledged the economic risks associated with rising oil prices and promised to respond quickly if negative trends intensify.

United Kingdom

The pound is gaining strength against its main rivals — the US dollar, the euro, and the yen.

In the absence of major economic releases, price movements are largely driven by external factors. UK Chancellor Rachel Reeves commented that it is still too early to assess the economic consequences of the Middle East conflict for the national economy. However, she emphasized that the government will take all necessary measures to mitigate inflation risks, which are likely to rise due to higher global energy prices. Meanwhile, officials from the UK Financial Conduct Authority recently stated that consumer inflation could reach around 3.0% by the end of the year rather than the previously expected 2.0%.

Japan

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

Market participants and forex traders are closely watching February corporate inflation data. On a monthly basis, the index declined from 0.2% to –0.1%, more than the expected 0.1%, while the annual figure fell from 2.3% to 2.0% compared with forecasts of 2.2%. This indicates weakening inflationary pressure in the Japanese economy. The indicator may soon fall below the Bank of Japan’s 2.0% target, which is why many analysts surveyed by Reuters expect a return to a more hawkish policy later this year. Most likely, borrowing costs will remain at 0.75% at the March meeting but could rise to 1.00% by the end of June.

Australia

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

Representatives of the three largest financial institutions in the country expect the Reserve Bank of Australia (RBA) to raise interest rates again next week. Analysts from Westpac Banking Corp., the National Australia Bank, and the Commonwealth Bank of Australia forecast a 25-basis-point increase in borrowing costs to 4.10%. Moreover, they do not rule out continued hawkish rhetoric at the May meeting, as the risk of accelerating inflation remains high amid rapidly rising energy prices.

Oil

Oil prices are attempting a moderate recovery as the market remains influenced by several opposing factors.

Prices continue to receive support from the escalating military conflict between the United States and Iran, which has already led to the blockade of the Strait of Hormuz, effectively removing around 20.0% of global oil supply from the market. Over the past 24 hours, Iran’s Islamic Revolutionary Guard Corps (IRGC) reportedly damaged three vessels attempting to pass through the strait despite Tehran’s official ban. Experts note that since the beginning of the confrontation not only supplies but also overall global oil production has declined by about 6.0%. At the same time, the weekly inventory report from the American Petroleum Institute (API) provided additional support to prices, showing a decline of 1.700 million barrels compared with expectations of a 1.400 million-barrel drop. However, further bullish momentum remains limited by expectations that the International Energy Agency (IEA) could release additional reserves onto the market. Reports remain mixed: Reuters sources claim that G7 members proposed postponing such measures, while The Wall Street Journal reports that the IEA is considering releasing volumes exceeding the 182.0 million barrels that were deployed in 2022 after the start of the Russia-Ukraine conflict.