It has been yet another week where conflict in the Middle East, and the resulting spillovers, have been the dominant theme for FX markets. After an initial retreat, oil prices look set to finish on the front foot, helping push the DXY back toward the 100 mark ahead of the weekend. Indeed, this focus on conflict between the US, Israel, and Iran has come at the exclusion of other, more typical FX drivers. February readings are now seen as dated, while central bank speak is struggling to contain hawkish rate expectations that continue to be propped up by fears of rising inflation.

That being said, the week ahead brings with it some of the first hard data indicators for March, allowing traders to assess whether or not some of these concerns are well-founded. The eurozone and Switzerland both receive preliminary CPI estimates for the past month, while in the US, a March jobs report is also scheduled for publication. Our sense is that the upcoming data will help to assuage at least some of the present market worries. Still, if developments in the Middle East continue to unfold, these will be hard for traders to ignore, a dynamic likely favours further dollar upside on balance, at least until signs of a possible ceasefire come more durably into view.

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Authors:

Nick Rees, Head of Macro Research

Barry van der Laan, Senior FX Market Strategist

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