The dollar nudges higher as Middle East risks persist
The dollar firmed on Tuesday as traders questioned whether the temporary truce in the US–Iran war would be extended. Reports that US forces boarded an Iranian tanker and that Tehran had yet to decide whether to attend talks sent the DXY nudging higher. March US retail sales, released later in the af
USD
The dollar firmed on Tuesday as traders questioned whether the temporary truce in the US–Iran war would be extended. Reports that US forces boarded an Iranian tanker and that Tehran had yet to decide whether to attend talks sent the DXY nudging higher. March US retail sales, released later in the afternoon, beat expectations with a 1.7% monthly rise, but the move in the dollar was more about renewed geopolitical anxiety than data. Federal Reserve nominee Kevin Warsh’s testimony to the Senate emphasised policy independence and sounded slightly hawkish. Taken together, these factors put the dollar back on the front foot after Monday’s softer close. We maintain the view expressed in our Week Ahead that markets will remain reactive to headlines around the Strait of Hormuz and the evolving US–Iran ceasefire. There are no major US releases today, meaning attention will remain on Middle East developments and comments from Fed officials. With oil prices still relatively stable, and a ceasefire that has been extended indefinitely but which is also in question, we see scope for further volatility; a sustained easing in tensions would encourage renewed dollar selling, whereas any resumption of hostilities would likely trigger another round of safe‑haven demand.
EUR
The euro slipped from the upper end of its recent range on Tuesday, falling about half a percent against the dollar, trading in the mid‑1.17s as the greenback drew support from safe‑haven flows. There were no significant euro‑area releases, and the single currency remained hostage to external drivers. Looking ahead, the eurozone calendar is again quiet today, with attention turning to Thursday’s flash April PMIs. We expect those indices to edge down, consistent with tepid growth and ongoing energy‑driven price pressures. That aside, ECB President Lagarde speaks later today, though our expectation is for little fresh policy guidance. As such, we continue to view EURUSD as rangebound for now, with sentiment toward the Middle East likely to dictate short‑term moves.
GBP
Sterling weakened alongside other majors on Tuesday, dipping to around 1.35 as geopolitical concerns boosted the dollar. Still, we think more downside could be to come, with markets yet to fully appreciate the weakness seen across yesterday’s labour market data, or the jeopardy that faces PM, Keir Starmer. Admittedly, this morning’s March CPI did not add to that pressure, largely matching expectations. Headline inflation rose 0.3pp to 3.3% YoY, in line with consensus, while core CPI growth dipped a tenth to 3.1%. That mix is likely to ensure that a rate cut later this month remains off the table, even as recent data bolsters our call for renewed rate cuts later in the year. Markets now look to BoE speeches and Friday’s retail sales figures for further guidance, while we expect sterling to remain sensitive to Middle East headlines.
CAD
The Canadian dollar lost some ground on Tuesday, retreating marginally against the US dollar as investors fretted that the ceasefire between the United States and Iran might expire without agreement, overshadowing domestic data concerns. Tuesday’s price action suggests markets remain more focused on global risk appetite than on domestic fundamentals. Looking ahead, there are few notable Canadian releases until Friday’s retail sales numbers. Should a ceasefire extension hold, and oil prices stabilise, we could see CAD recover toward its recent highs. But until there is tangible progress on the diplomatic front, we expect choppy trading conditions to persist.