USD

After ebbing late last week, dollar strength returned over the weekend, with Middle East developments overshadowing Friday’s softer-than-expected March inflation data. The CPI report showed headline inflation surging 0.9% MoM, the largest rise since mid‑2022; however, core CPI rose only 0.2% on the month, pointing to sticky energy‑driven inflation but little underlying pressure. However, news that US–Iran talks in Islamabad collapsed, and that the US will blockade Iranian ports, has reignited safe‑haven demand. Oil jumped back above $100 this morning, seeing the dollar up around 0.5% relative to Friday’s close. We had warned that any escalation or strong US inflation reading could re‑anchor the dollar; that risk is now unfolding. With a sparse data calendar ahead and only Fed speakers on the slate, we expect markets to trade headline‑by‑headline. Should blockade implementation provoke further retaliation, higher oil prices and firmer inflation expectations would keep the dollar supported; any signs of renewed negotiations could see gains unwind.

EUR

The euro ended last week above 1.17 against the dollar, helped by some dovish signals from Friday’s US CPI report. That strength has not lasted, however, with EURUSD dipping lower this morning as a risk-off tone takes hold. That said, in Europe, the centre‑right Tisza party’s decisive victory in Sunday’s Hungarian election removed a long‑standing obstacle to EU decision‑making, a factor we think should be euro supportive at the margin. Perhaps a little less surprisingly, the forint has surged roughly 2% against the euro and 1.6% versus the dollar through early trading as investors bet that EU funds will be unlocked and that a pro‑reform government will lower risk premia. Looking ahead, with a heavy schedule of ECB and Fed speakers but few data releases, the euro is likely to trade between 1.16 and 1.18. We still think further upside is limited unless hostilities de‑escalate; a protracted blockade would hit Europe’s energy‑dependent economy and weigh on the single currency.

GBP

Sterling’s rally last week was built on the tentative ceasefire and a softer dollar, allowing GBPUSD to test the high‑1.34s on Friday. That rally has now stalled, with the pound threatening the 1.33s this morning after Middle East developments further dented risk sentiment. Granted, this could have been worse for the pound, had it not been for the March REC report on jobs, published overnight. This showed little impact from the US-Iran conflict, offering a little comfort for policymakers. Still, we suspect that Middle East headlines and oil prices will set the tone for sterling moving forward. We continue to expect GBPUSD to oscillate in a 1.33–1.35 range; a sustained rise in oil prices or further escalation could push it lower, while signs of renewed diplomacy might see modest rebounds.

CAD

Canada’s March labour force survey, published Friday, delivered the first job gain this year, with employment rising by 14k after a steep drop in February. The unemployment rate remained at 6.7%, while average hourly wages for permanent employees accelerated 5.1 % YoY. In short, the data point to some slack in the labour market but sticky wage inflation. Despite this, USDCAD has since moved back toward the top of its recent 1.37–1.39 range this morning, with deteriorating risk conditions more than overshadowing rising oil prices and improved labour market readings. More focus on these latter factors could see the pair retrace lower in the short term, but further Middle East escalation remains a downside risk for the loonie.

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