Oil Takes a Breather. The Fed Takes the Stage.

The Fed announces rates today. Oil pauses its rally just in time. The dollar sits at a 10-month high and isn't blinking. BoE and ECB rate decisions follow Thursday. A loaded 48 hours ahead, that could move every G10 pair this week.

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GBP: Sterling Quiet Before the BoE Speaks

GBPUSD 1.3367 | EURGBP 0.8635

The pound trades at 1.3367 against the dollar. Simultaneously, the euro snapped its four-day winning streak against sterling, trading flat near 0.8635. Traders have entered a "wait-and-see" mode before the Bank of England (BoE) interest rate decision on Thursday.

The BoE is expected to hold rates at 3.75%. What the session is waiting for is Governor Bailey's language around energy. The Strait of Hormuz, now in its third week of disruption, has pushed Brent Crude above $100. The question the MPC cannot dodge is whether this oil shock is transient enough to look through or persistent enough to reshape the inflation path. The answer to that question shapes Sterling's next meaningful leg.

UK employment data also drops on Thursday. The ILO Unemployment Rate is forecast at 5.3% for January, up from 5.2% in December. A tight labour print alongside a cautious BoE tone would reinforce the case for holding rates without pivoting. That configuration keeps sterling supported in the cross without giving it a reason to break higher against the dollar.

On the diplomatic front, US President Trump described the UK as "a disaster on immigration," told Downing Street to scrap wind energy and tap North Sea oil, and said he was "disappointed" with UK Prime Minister Starmer. He labels UK immigration policy a disaster. These comments weigh on Sterling’s sentiment. Sterling traders must navigate both data and diplomacy.

The BoE is what matters here, and Thursday will show whether that patience was well-placed. Any hint of a hawkish shift provides Sterling a tailwind, while weak employment figures do the opposite and invite selling pressure.

Sterling trades on a narrow edge. Short-term volatility stays elevated as both inflation and growth signals pull in opposite directions.

Key technical levels for GBP/USD: Resistance at 1.3450 and Support at 1.3300.

Key technical levels for EUR/GBP: Resistance at 0.8700 and Support at 0.8600.

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Euro Finds Its Feet Before Lagarde Takes the Floor

EURUSD 1.1543 | EURGBP 0.8635

The EUR/USD pair trades near 1.1543, with a 0.3% overnight gain that flatters the picture. The euro touched its lowest level since July last year in recent sessions. This recovery is built on thin ground, and the European Central Bank (ECB) knows it.

German investor morale dropped in March. The ZEW survey reflected fear that energy-driven price rises could stall Germany's recovery before it gains traction. Germany, sitting at the epicentre of eurozone growth and confidence, matters for what the ECB says tomorrow. ECB’s Christine Lagarde walks into that press conference, with the question in front of her: how does the bank balance an oil shock on one side against slowing growth on the other?

The rate pricing shift tells the real story. Before the Iran conflict began, traders priced in a close to 50% probability of an ECB cut this year. That stance has fully flipped. A July hike is now fully priced. An 85% probability of a second hike by year-end is baked into the forward curve. The ECB deposit rate is expected to stay unchanged at 2.00% tomorrow and Lagarde's every word could be parsed to determine that pricing is justified. Hawkish commentary from Lagarde on Thursday could provide near-term support to the euro against the pound. Every word of that press conference would be scrutinised, while any hint of hesitation unwinds the cross move quickly.

Key technical levels for EUR/USD: Resistance at 1.1600 and Support at 1.1450

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USD: The Fed Enters the Room, the Dollar Sits Tight

DXY 99.50

The dollar index held near 99.50 on Wednesday. The dollar reached a 10-month high at the end of last week as the Middle East conflict and spiking oil prices drove investors into US assets. The haven bid is real with the dollar sitting tight on an event-loaded afternoon.

Today, the FOMC is expected to hold rates at 3.50-3.75%. While the outcome is seemingly priced in, the dot plot is not. The Federal Reserve (Fed)'s updated projections carry more weight than today's rate decision itself. The risk sitting in the room is that the median dot shifts to zero rate cuts for 2026, reflecting an energy-driven inflation environment that the Committee judges as stickier than it previously thought. That would be the hawkish read and the dollar would feel it.

The structural argument for Fed patience is grounded in America's energy position. The US is a net oil exporter. A global energy spike improves American terms of trade and supports real GDP growth. US natural gas prices have held stable since 1st March. Dollar strength absorbs part of the imported inflation pressure. The Fed has room to observe without reacting and Powell has telegraphed exactly that posture. His press conference today is expected to deliver a balanced, non-committal read without closing any doors.

The labour market is the offsetting concern. February nonfarm payrolls shed a net 92,000 jobs. The six-month average sits at zero, following sharp downward revisions to Bureau of Labour Statistics (BLS) data. Powell has struck a balanced tone, acknowledging the softness without treating it as urgent. The dot plot will clarify how that balance is reflected in the Committee's formal projections.

Oil gave the session a brief pause. Brent Crude dropped 1% to $102.28 a barrel. WTI fell 1.6% after API data showed a build in US crude inventories. Some analysts are reading this as a temporary buffer rather than a directional shift, since the Strait of Hormuz is still largely shut. If it stays that way, Atlantic basin inventories will draw down and global supply will reprice higher. The UAE is weighing joining a US-led escort operation in the Strait. Several Western nations have already declined Trump's request to send warships. Trump called NATO's inaction on the Strait a "big mistake" and separately confirmed his Beijing trip with President Xi has been pushed back by five weeks.

The Bank of Canada also meets today. No policy change is expected, though traders are pricing in a full rate hike by year-end.

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The Rest of the FX Board Picks a Side

AUDUSD 0.7114 | NZDUSD 0.5864 | USDJPY 158.69 | GBPJPY 212.14

AUDUSD strengthened to 0.7114 after the Reserve Bank of Australia (RBA) opened this week's central bank run with a rate hike. NZDUSD followed at 0.5864. Commodity currencies find support as oil retreats. Asian stocks rally. Investors hope for a de-escalation in the Middle East. However, the reality on the ground stays grim.

The yen stays shaky at $158.69, a level that has previously drawn intervention warnings from Tokyo. The GBP/JPY pair trades at 212.14 amid persistent Yen weakness. Japan’s Prime Minister Sanae Takaichi prepares to meet President Trump, departing for Washington on Wednesday evening. The yen's weakness reflects the Bank of Japan's (BoJ) accommodative stance alongside an administration that may favour, or at least tolerate, a softer currency. This acts as a limited downside for USD/JPY from current levels.

If Middle East tensions settle into a prolonged standoff rather than further escalation, commodity currencies could recover further while oil-importing economies' currencies, including the yen and the euro, could see some relief.

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Current Rate Table:

(rates as at the time of writing)

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Market Lookahead

Wed, 18 Mar (Today)

• EUR - Eurozone HICP Final (Feb)
• USD - US PPI; Fed Rate Decision, FOMC Economic Projections
• NZD - New Zealand Q4 GDP
• JPY - Japan foreign investment data

Thu, 19 Mar

• GBP - UK Claimant Count (Feb), ILO Unemployment + Employment Change (Jan);
• GBP - BOE Rate Decision
• EUR - ECB Rate Decision - Deposit facility rate
• USD - US Initial Jobless Claims
• JPY - BoJ Rate decision

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