🇬🇧 Pound Falls Against Dollar, Euro Pair Eyes Resistance
Last week the Pound weakened significantly against the Dollar as developments in the Middle East conflict weighed on market sentiment, with Friday’s sell-off bringing total weekly losses to around 1.3%. This move was further exacerbated by disappointing UK economic data. The Office for National Statistics reported that the UK economy recorded no growth in January, falling short of market expectations for 0.2% growth and dampening hopes that a post-budget rebound was underway. For the government, the concern is that this data predates the escalation of tensions involving Iran and the resulting rise in energy prices, which could further undermine both business and consumer confidence in the coming months.
However, the outlook for GBP/EUR differs slightly. Markets are increasingly pricing in the possibility that the Bank of England may delay cutting interest rates. In contrast, expectations are building that the European Central Bank could move to cut rates sooner, which would typically provide support for the Pound against the Euro. With this backdrop, GBP/EUR may attempt to break the key resistance level at 1.16. The pair begins the week trading around 1.158, while GBP/USD (Cable) opens near 1.32.
🇺🇸 Middle East Tensions Lift Dollar as Energy Risks Intensify
The continued escalation of tensions in the Middle East has provided further support for USD, which, as previously mentioned, has been weighing on Cable. Energy markets remain elevated, with Brent crude holding near $100 per barrel, and upside risks persist after President Trump warned overnight that ‘we have unparalleled firepower, unlimited ammunition, and plenty of time’. These remarks mark a shift from comments earlier in the week suggesting the conflict could be nearing an end and highlight the ongoing geopolitical backdrop that continues to support the Dollar.
Over the past month, the Dollar has strengthened by nearly 3% against the Pound and around 4% against the Euro. Adding to market concerns, Iran’s new Supreme Leader, Mojtaba Khamenei, stated on Thursday that Iranian forces would ensure the Strait of Hormuz remains effectively closed. Such developments risk further disruption to global energy supplies and, at least in the short term, are likely to continue providing support to the US Dollar as investors seek safe-haven assets.
🇪🇺 Euro Under Pressure as Middle East Tensions and Energy Prices Rise
East, having fallen by around 1.5% against the US Dollar over the past week. These developments continue to weigh on the single currency, with EUR/USD opening the week near 1.14. The move has been further exacerbated by rising energy and oil prices, which tend to disproportionately impact the Eurozone economy.
However, expectations surrounding European Central Bank policy have recently shifted in what some analysts describe as a ‘hawkish flip’. Markets are now anticipating fewer or slower interest rate cuts, with the possibility that policy may remain tighter for longer than previously expected. While this could provide some underlying support for the Euro, the currency remains vulnerable in the near term, as any further spike in energy prices would likely offset the benefits of a more hawkish ECB stance.
This Week’s Market Moving Data
Once again, markets this week will not be focused solely on economic data, but also on developments in the Middle East and how President Trump’s next moves may influence global sentiment. Nevertheless, several key central bank events will draw significant attention. The Federal Reserve’s interest rate decision on Wednesday will be closely watched by traders, followed by the Bank of England’s policy announcement on Thursday. In addition, the European Central Bank’s assessment of current monetary policy will be particularly important, especially as markets increasingly believe a more hawkish shift in expectations may be underway.
Wednesday 18th March
US Federal Reserve Interest Rate Decision
The Federal Reserve’s policy decision this week will be a key focus for markets, with investors closely watching for any changes to the Federal Open Market Committee’s assessment of inflation trends and the resilience of the US economy. For FX markets, the tone of the statement, updated guidance, and Chair Powell’s remarks will be crucial in shaping expectations around the timing and pace of potential rate cuts in 2026, which could drive near-term movements across major dollar pairs.
Wednesday 19th March
Bank Of England Interest Rate Decision
The Bank of England’s policy decision this week will be a key focus for markets, with investors watching closely for any changes to the Monetary Policy Committee’s assessment of inflation persistence and domestic demand. For FX, the tone of the statement, accompanying guidance, and Governor Bailey’s remarks will shape expectations for the timing and pace of rate cuts in 2026, influencing near-term moves in sterling pairs.
The ECB Monetary Policy Statement
The ECB Monetary Policy Statement is important for the euro because it provides insight into how the European Central Bank views inflation, economic growth, and the future path of interest rates. If the ECB signals higher rates for longer or slower rate cuts, it can strengthen the Euro by increasing the return on euro-denominated assets, while a more dovish tone could weaken the currency.
