Strait Tension Seals March with Dollar in Control

Strait Tension Seals March with Dollar in Control A world in flux: Oil surged 50%+ for the month, Sterling steadies despite weak growth and rising energy risk. Euro finds support in ECB pricing. The dollar claimed a 10-month high on safety flows as oil and geopolitics continue to reshape rate expectations.

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GBP: GDP and the Geopolitical Grinder

GBPUSD 1.3200 | EURGBP 0.8690

Sterling shed more than 2% in March as the environment shifted from mechanical headline trading into a profound "risk-off" fever. GBPUSD slipped from 1.3200 to the 1.3100 area. This was its lowest level since December 2025, before it recovered to test 1.3200. EURGBP held at 0.8690 in a narrow range.

The UK economy offered a moment of stillness today amidst a gathering storm. UK Q4 GDP data landed at 0.1% QoQ and 1% YoY. These matched forecasts and held the line from previous figures. While GDP serves as the primary pulse of British economic health, this stability did little to mask the underlying bruises.

The narrative has evolved. Earlier optimism that the U.S. administration could dictate the timeline of Middle Eastern tensions has dissolved into a fear of a prolonged conflict. This uncertainty weighs heavily on a currency backed by a nation dependent on imported natural gas and stretched public finances.

British government bonds have fallen sharply, forcing some pension funds to increase cash holdings to hedge their positions. While this lacks the explosive chaos of the 2022 gilt crisis, the pressure is palpable. Domestic UK politics faded into the background, but fiscal risk rose. Labour trails Reform UK and the Greens ahead of the 7 May local elections. The energy shock and the electoral calendar increased the likelihood of a more expansionary fiscal stance.

The Bank of England (BoE) now faces a dramatic pivot. Traders had previously bet on two rate cuts for 2026; they now anticipate at least two rate hikes, with a possible third. The catalyst: energy. Britain's dependence on imported natural gas put sterling directly in the path of the oil shock, with Brent crude rising above $114 before settling at $107.10, still up over 50% for March.

UK business activity hit a six-month low last week. Manufacturers' input costs rose at their fastest rate since 1992. Retail sales fell. Stagflationary conditions, low growth alongside rising costs, have left rate strategists weighing a difficult set of outcomes for sterling. The BoE faces no expectation of a cut. Rate hikes are now the base case.

Sterling trades between weak growth and persistent inflation. That tension keeps direction uncertain. Price action reflects external shocks more than domestic strength.

Key Technical levels for the GBP/USD pair: Resistance sits at 1.3200 and Support sits at 1.3050

Key Technical levels for the EUR/GBP pair: Resistance sits at 0.8720 and Support sits at 0.8650

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EUR: ECB Bets Cushion the Euro's March Fall

EURUSD 1.1469 | Range: 1.1460–1.1470

The euro headed for a monthly loss of close to 3%. EURUSD traded in a tight 1.1460 - 1.1470 range as dollar strength and rate repricing weighed on the pair. EURGBP held at 0.8690, reflecting the shared energy exposure between the eurozone and the UK.

Euro’s descent finds a floor in central bank rhetoric. As oil prices resumed their climb and the dollar asserted its broad authority, the euro/dollar pair might have collapsed further. However, expectations that the European Central Bank (ECB) would take action provided stability for the euro.

The market has priced in ECB rate hikes by year-end, a total reversal from the 50% chance of a cut seen before the conflict began. High energy prices make inflation a persistent ghost in the Eurozone machine. If oil fails to retreat in the coming months, the focus will inevitably shift from fighting inflation to mourning slower economic growth.

Eurozone HICP data for March arrives later today. The print will confirm or complicate the case for early ECB action. The ECB rate shift has been the single currency's primary support in March. Any softening in the inflation data will test that buffer.

Traders now expect an ECB hike as early as April. This shift in the interest rate floor suggests that while the dollar is king, the euro refuses to be a doormat, creating a tight, volatile range of cross-border flows.

The euro trades on policy expectations more than growth. ECB credibility anchors the currency, but energy risk limits upside momentum.

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Key Technical levels for the EUR/USD pair: Resistance sits at 1.1500 and Support sits at 1.1400

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USD: The Dollar's Altar: Safe Havens and the Oil Prophet

DXY 100.44 | Up 2.9% in March

The dollar acts as the ultimate safe haven, posting its strongest monthly gain since July. As the dollar index (DXY) climbed 2.9% through March, it emerged as one of the few assets to survive the carnage in stocks and bonds. This ascent draws strength from a "hawkish sea change" in the global outlook. U.S. crude advanced to $104.73 a barrel, marking a monthly rise of 56%, the steepest in nearly six years.

Fed Chair Jerome Powell, speaking at Harvard on Monday, reaffirmed the Federal Reserve's (Fed) wait-and-see approach. He noted potential risks of rising inflation and weaker employment. Powell stated that the Fed views higher oil prices as a temporary shock and considers tariff effects to be one-time rather than structural. His term concludes on 15 May, and he confirmed he will remain in his role until nominee Kevin Warsh is confirmed by the Senate.

New York Fed President John Williams echoed Powell's tone, underscoring the substantial risks and high uncertainty posed by the war, but said the policy is well-positioned. His key caveat: inflation expectations must not accelerate, though for now, he assessed them as anchored.

The Fed has effectively shelved expectations for easing. Prior to the war, markets priced in 50 basis points of cuts; now, the consensus favours holding rates steady. This "higher-for-longer" reality, coupled with the dollar's safety bid, has crushed other havens. The yen languishes near 160, and the Swiss franc has lost its lustre as a refuge.

The dollar benefits from a "safety bid" even as U.S. yields soften amid a darkening global growth outlook. With U.S. jobs data looming, the greenback's dominance seems anchored. February's print came in weak. Given a full month of conflict, participants are watching for signs of deterioration.

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Other Currencies Crack Under Pressure

USDJPY 159.63 | GBPJPY 210.66 | AUDUSD 0.6844 | NZDUSD 0.5708

Asian equities headed for their steepest monthly fall since 2022. The region's heavy reliance on Middle Eastern energy amplified the pain.

USDJPY traded at 159.63. The yen held just below 160 per dollar. GBPJPY stood at 210.66.

AUDUSD dropped to 0.6844 after holding up for much of the month. The shift came as attention moved from inflation to global growth fears. Commodity-linked currencies had held up in the inflation phase of the energy shock. That support faded when growth concerns took over. NZDUSD fell to 0.5708, a four-month trough. South Korea's won hit its weakest level since 2009.

The yen's failure to attract safe-haven flows reflects the persistent yield differential between Japan and the US. That differential has kept USDJPY elevated despite the risk-off tone.

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Current Rate Table:

(as at the time of writing)

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Market Lookahead

Tue, 31 Mar

• Germany import prices and retail sales
• Eurozone CPI
• US JOLTS job openings & US consumer confidence

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