US Dollar Weakens Against Euro and Pound as Middle East Risks Dominate Forex Markets

The focus of forex traders and investors remains on developments in the Middle East. Yesterday, US President Donald Trump hinted that consultations with the leadership of the Islamic Republic could resume in the near future, though no longer with Pakistan as a mediator, while noting that the current blockade of the Strait of Hormuz is intended specifically to pressure the opposing side into returning to discussions of peace initiatives. All of these comments have been perceived quite positively by the market, although experts also point to the significant risks of Washington’s recent steps. The issue is that China has substantial economic ties with Iran, and Chinese authorities have already stated that they will not comply with restrictions initiated by the United States, continuing to fulfill obligations to their trading partners.

As a result, any attempt to detain Chinese ships could provoke reciprocal measures, increasing the risks of further trade war escalation and deepening the global economic slowdown. It is also worth noting the latest comments from US Treasury Secretary Scott Bessent, who yesterday advised watching how the Middle East crisis develops before making any decision on cutting interest rates. He also stated that the national economy had been “very strong” in January and February, so the regulator was right to leave policy parameters unchanged. At the same time, Bessent expressed confidence that the US-Iran confrontation would not entrench high inflation expectations among consumers. Today at 14:30 (GMT+2), preliminary March data on the US Producer Price Index are expected to be released, with forecasts suggesting an acceleration from 0.7% to 1.2% month-on-month and from 3.4% to 4.6% year-on-year. Experts note that this indicator is rising globally, with the main reason being the sharp increase in fuel and energy costs for businesses. Against this backdrop, keeping the Fed interest rate in the 3.50–3.75% range through the end of the year appears to be the most likely scenario.

Eurozone

The euro is gaining against the US dollar, but weakening against the pound and showing mixed dynamics against the yen.

Today, March data on wholesale prices in Germany were published: the index rose from 0.6% to 2.7% month-on-month versus preliminary expectations of 0.4%, and from 1.2% to 4.1% year-on-year, pointing to continuing supply chain problems and higher energy costs. If this data is confirmed at the eurozone level, the likelihood of tighter monetary conditions from the European Central Bank (ECB) will increase significantly. It is also worth noting comments from Finnish central bank governor Olli Rehn, who said policymakers should carefully analyze the economic consequences of the military conflict in the Middle East before making decisions on monetary policy adjustments.

United Kingdom

The pound is strengthening against the US dollar, but weakening against the euro and showing mixed dynamics against the yen.

Local support for sterling comes from the release of strong March data from the British Retail Consortium (BRC): against the backdrop of Easter holidays and stronger shopping activity, the annual indicator rose by 3.1%, above both forecasts (0.9%) and the February reading (0.7%), although demand across non-food categories remained uneven. As a result, the structure of consumer demand shifted toward computer equipment and home goods, while the clothing segment showed relatively weaker demand. It is also worth noting the March report from financial conglomerate Barclays, according to which consumer spending growth slowed from 1.0% to 0.9% in March due to reduced travel, but still remained fairly strong. Overall, consumer demand in the UK economy appears relatively resilient despite ongoing pressure from the fuel crisis and related costs, which partly reduces the risks of a sharp slowdown in business activity.

Japan

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

Today, February industrial production data were published: output declined by 2.0% after rising by 4.3% a month earlier, showing a slowdown even before the active phase of the US-Iran conflict amid higher trade tariffs initiated by the White House. Later, when the data begins to reflect the negative consequences of rising energy prices, pressure on the sector could increase further, intensifying the risks of an overall economic slowdown and supporting a wait-and-see stance by the Bank of Japan on monetary policy adjustments. It is also worth noting the latest comments from Economy, Trade and Industry Minister Ryosei Akazawa, who said yesterday that raising borrowing costs at the April meeting “could be one option” to support the national currency, since real interest rates in the country remain quite low.

Australia

The Australian dollar is gaining against the US dollar and showing mixed dynamics against the euro, pound, and yen.

Traders are focused on March business confidence data from the National Australia Bank (NAB), based on a survey of 350 companies, which fell from 0.0 points to –29.0 points, while the consumer sentiment indicator from the country’s largest bank, Westpac Banking Corp., dropped from 1.2% to –12.5%, reacting to the sharp rise in energy prices. It is also worth noting the latest comments from Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser, who said that interest rates are currently at a sufficient level to contain inflation, but policymakers need to monitor the impact of the Middle East crisis on economic activity so they can adjust monetary policy in time if necessary.

Oil

Oil prices are making moderate attempts to rise today.

Prices are being supported by the US blockade of Iranian maritime shipping, which could lead to stronger negative consequences for the global economy. Experts believe that in response, Tehran may once again fully close the Strait of Hormuz, through which around 20.0% of global oil and gas traffic passes, and may refuse to allow tankers through even for payment. At the same time, the Bab el-Mandeb Strait could also be blocked, lengthening the delivery route of crude oil to consumers. However, the rise in prices is being somewhat restrained by the publication of the International Energy Agency (IEA) report: according to the document, global oil demand is expected to decline by 80,000 barrels per day this year as the Middle East conflict worsens global economic prospects. This is 730,000 barrels per day less than had been expected last month. Today at 22:30 (GMT+2), traders will focus on inventory data from the American Petroleum Institute (API): stockpiles are likely to decrease by 1.400 million barrels, which could provide additional support to energy prices.