USD

The US dollar remained firmly bid yesterday, extending last week’s safe-haven rally amid persistent geopolitical tensions. Escalating hostilities in the Middle East fuelled yet another wave of risk aversion, overshadowing an appearance by Fed Chair Powell at Harvard that would otherwise have garnered decent market attention. In turn, the DXY dollar index pushed up to ~100.5 on Monday, its highest level since mid-2025 and putting the greenback on track for its strongest month in nearly a year. Looking to today, quarter-end flows could induce some volatility, but the overarching focus remains on the war’s impact. A US job openings report and Fed speakers are due later, though we expect traders to keep their attention on any geopolitical headlines with hints overnight that President Trump might be considering exiting the war. Absent a sudden de-escalation, however, the dollar should stay well-supported in the near term, consistent with our view that only a meaningful cooling of tensions would trigger a more lasting pullback.

EUR

The euro failed to gain traction on Monday, with EURUSD dropping to the mid-1.14s as Middle East turmoil kept investors on guard. The pair ended essentially flat, leaving it more than 2.5% lower for March, the steepest monthly drop since last summer. Even so, we maintain that the energy shock may not spur as sharp a rise in underlying inflation as many fear, a view supported by Spain’s softer inflation reading late last week, and the details of German CPI prints released yesterday. If today’s eurozone CPI flash estimate similarly indicates that price pressures aren’t as severe as anticipated, it could further temper ECB rate hike bets. Still, with conflict risks dominating sentiment, any euro rebound is likely to remain capped unless clear progress towards a ceasefire materialises.

GBP

Sterling started the week on the back foot again as global risk aversion kept investors defensive. The pound slipped below 1.32 on Monday and looks likely to end the month down over 2% down against the dollar. Soaring energy costs from the Middle East conflict are fanning UK inflation fears while darkening the growth outlook – a combination that leaves the Bank of England in a bind. But tellingly, even normally hawkish MPC members have struck a more cautious tone, echoing our view that further BoE rate rises are far from guaranteed, in contrast to current market pricing. With no major UK data due today, sterling will take its cues from global developments. Unless risk sentiment improves, likely requiring clear de-escalation in the Middle East, any sterling rebound is likely to remain limited.

CAD

The Canadian dollar weakened further on Monday as haven flows into the US dollar overshadowed the boost from $100+ oil prices. USDCAD pushed above the 1.39 mark, extending its climb to multi-month highs. While surging crude has improved Canada’s terms of trade, a global inflation scare tied to rising energy costs is keeping the Bank of Canada in wait-and-see mode while simultaneously weighing on risk conditions. That mix is, for now, favouring the dollar, despite Canada’s favourable export position. Focus now turns to the January GDP report, due this afternoon, which is expected to show a modest 0.1% monthly rise. But unless the figure deviates significantly from forecasts, domestic news will likely be overshadowed by oil market swings and overall risk sentiment again. A credible step towards peace could boost risk appetite and offer the loonie some relief, but without such progress, we remain hesitant in calling for a loonie turnaround.

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