USD

The US dollar extended its rally at the end of last week as persistent risk-off sentiment kept the buck in high demand. On Friday, escalating hostilities in the Middle East drove another wave of safe-haven flows; oil prices surged markedly, global equities stumbled, and U.S. Treasury yields remained elevated. This classic flight-to-safety dynamic lifted the dollar index to around the 100 mark, putting the greenback on track for its strongest monthly gain since last summer. Looking ahead to today, quarter-end flows could buffet the greenback, but any further negative headlines are likely to ensure that the dollar stays supported. Market attention will also turn to a scheduled speech by Fed Chair Jerome Powell this afternoon; we expect him and his colleagues to reiterate that monetary policy will remain restrictive until energy-driven inflation risks are contained. That said, a boots-on-the-ground escalation remains the major near-term concern, with Trump indicating over the weekend that he is actively considering such an option. Barring a sudden cooling in tensions between the US and Iran, we see limited scope for a sustained pullback in the dollar in the very near term.

EUR

The euro closed last week on the defensive, unable to regain ground amid the ongoing turmoil in the Middle East. By the end of Friday trading, EURUSD had slipped back towards the low-1.15s, leaving the common currency on pace for a monthly decline of roughly 2.5% – its worst performance since last summer. Even a better-than-expected outcome for the eurozone’s March CPI could bring only fleeting relief, as markets remain focused on the broader stagflationary risks. Notably, Spain’s inflation data released late last week undershot expectations, reinforcing our view that this energy shock may not translate to as sharp a jump in core prices as feared, potentially limiting the European Central Bank’s appetite for further aggressive rate hikes. However, with war-related uncertainty overshadowing data, any positive surprise in today’s German CPI release might provide only limited relief for the single currency. Unless tangible progress towards a ceasefire emerges, we expect the single currency to remain subdued, with traders likely using any brief rallies as an opportunity to reposition defensively.

GBP

Sterling also struggled to make headway on Friday, wrapping up the week under pressure as global risk sentiment stayed fragile. Despite February’s UK retail sales and GfK consumer confidence coming in higher than expected, the pound failed to capitalise on those releases, with backward-looking data offering little lasting support amid the unfolding energy shock. That said, while the ongoing conflict’s impact on energy prices and economic confidence has reinforced doubts about the Bank of England’s next steps, even typically hawkish voices within the Monetary Policy Committee have recently sounded more cautious, aligning with our view that further rate hikes are far from guaranteed. With no major UK data due out today, we anticipate that sterling will continue to take its cues from external factors – namely, any shifts in oil prices and overall market sentiment. Absent a meaningful de-escalation in geopolitical tensions, any gains in the pound are likely to be limited and hard-won, with investors hesitant to drive sterling much higher in the current uncertain climate.

CAD

The Canadian dollar remained on the back foot into the end of last week, as safe-haven demand for the greenback overshadowed the support from surging oil prices. USDCAD rose for a fifth straight session on Friday, briefly trading near the 1.39 level and leaving the loonie down over 1% on the week. While oil’s jump above $100 has improved Canada’s terms of trade, it has also stoked global inflation fears, supporting a cautious approach from the Bank of Canada. In a speech last week, BoC Senior Deputy Governor Carolyn Rogers acknowledged the inflationary impact of higher energy costs while maintaining a patient, wait-and-see stance – a message in line with our expectations. With no domestic data due out today, the loonie will remain at the mercy of oil price moves and overall risk sentiment. If credible signs of ceasefire talks emerge, a retreat in risk premia could offer some relief. However, with hostilities ongoing, we remain wary of calling a definitive peak in USDCAD and expect the pair to stay elevated for now.

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