The Strait Stalemate Is Moving Every Rate

Tuesday opened the way geopolitics always does when it overstays its welcome: promising more than it delivered and collecting the tab from every currency that had dared to relax. Iran denied the talks. Trump extended the deadline. The Strait stays shut. Every rate from Sterling to Brent is telling you the stalemate isn't over.

---

GBP: The Old Lady’s Tightrope Walk

GBP/USD 1.3411 | EUR/GBP 0.8649

Sterling opened Monday with intent. The GBP/USD pair surged close to 1% as traders rewarded the brief pause in US-Iran hostilities. By Tuesday's Asian session, the pair eased to 1.3388. The rally did not survive the overnight news cycle. This risk-sensitive pair weakens as risk aversion grows. Reports of US-aligned Gulf states moving toward direct military involvement pulled the floor from under the pound's one-day recovery. Saudi Arabia's signalling of a potential military shift, cited in the Wall Street Journal, hardened sentiment against Sterling and reset the mood heading into Europe's open.

The Bank of England (BoE) held rates at 3.75% at its March meeting. Governor Andrew Bailey views the Middle East conflict as a shock to the economy, citing near-term inflationary pressures and calling for the restoration of shipping through the Strait of Hormuz as the structural fix for rising energy costs. The BoE signalled readiness to act to meet its inflation target. That posture creates a tension Sterling now carries: a hawkish tilt colliding head-on with a cost-push shock the pound did not author.

Today’s flash PMIs put more pressure. Consensus expects the UK manufacturing PMI at 51.1 and the services PMI at 53.0. A further softening tests the hawkish BoE repricing that has supported Sterling in recent weeks. Traders are also watching Wednesday's UK CPI, forecasted 0.4% MoM for February. Historically, a hotter print has supported the pound against the euro.

EUR/GBP held near 0.8650 through early European trade. The European Central Bank (ECB)'s expected rate hikes in April and June give the euro a structural edge against Sterling. The ECB is expected to tighten bank rates, while the BoE is leaning towards a hold-and-watch approach. That divergence defines EUR/GBP's path unless UK inflation reshuffles the hand on Wednesday.

Key technical levels for GBP/USD: Resistance at 1.3450, 1.3500 and Support at 1.3320, 1.3250

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

---

EUR: The Eurotower's Mixed Signals

EURUSD 1.1597

EUR/USD touched 1.1538 in Tuesday's Asian session after Monday's 0.4% gain. However, the euro's hand was weakened as Middle East tensions pushed demand toward the dollar. As is often the case, geopolitical risk does not distribute losses by economic logic but rather concentrates them in the pair most exposed to risk appetite. For now, that pair seems to be EUR/USD.

The ECB's wage tracker shows a slowdown, sharpening the structural picture. Headline negotiated wage growth is forecast to fall to 1.7% in February 2026, then rise to 2.6% by Q4. This signals temporarily reduced wage pressure, making immediate aggressive rate action less likely. With lower near-term wage growth, the ECB can proceed more gradually with rate hikes in April and June. However, the Q4 wage rebound keeps the ECB focused on balancing inflation risks, supporting gradual tightening instead of a sudden policy shift.

Today’s PMI readings for the Eurozone and Germany act as the next hurdle, testing that conviction. German manufacturing, already strained by elevated energy costs, faces further scrutiny. ECB speakers Machado, Cipollone and Lane are scheduled to speak at separate events on Tuesday. Their framing on inflation and energy pass-through sets the euro narrative ahead of ECB President Lagarde's scheduled appearance on Wednesday. Fed commentary later this week could shape EUR/USD in the other direction. Officials tilting hawkishly lift the dollar and add headwinds to the pair from both ends.

Key technical levels for EUR/USD: Resistance at 1.1620, 1.1680 and Support at 1.1500, 1.1450

---

USD: The Greenback Holds the Fort. The Conflict Stays.

DXY 99.40 | WTI $90.45 | Brent $102

The DXY climbed to 99.40. The index posted a 1.8% gain this month, tracking its strongest monthly performance since October. Safe-haven demand from the Middle East conflict drove the bulk of that move. Traders stopped pricing a Federal Reserve rate cut in full this year. That repricing gave the dollar a structural floor.

Trump posted on social media that the US and Iran held "very good and productive" conversations, while Iran's state media reported: "zero contact." That contradiction settled nothing, leaving the arena in flux. The five-day extension on the bombing ultimatum gave the tape a brief window to exhale, but the situation stays tense. US’ Energy Secretary Wright says the USA stays open to talks but seeks the true leaders in Iran.

On Tuesday, Brent Crude snapped back above $100. The dollar dipped, then reclaimed its losses.

US 10-year yields sit at 4.368%. WTI trades near $90.45. Both numbers point in the same direction: energy costs are elevated, and bond yields are not signalling relief. Dollar support holds as long as de-escalation stays out of reach.

Fed Governor Miran stated inflation expectations are coming down and wage pressures are easing. He sees four cuts this year. Chicago Fed's Goolsbee took a more cautious line, citing the threat of a lasting gasoline price shock. He flagged that inflation expectations are anchored for now but could deteriorate quickly once conditions shift. SF Fed's Daly added that too much forward guidance in an uncertain world risks projecting false certainty. A prolonged conflict raises those risks. For now, the Fed seems determined to hold its position and watch the data unfold.

The dollar reasserts its status as the ultimate haven. Geopolitical chaos and rising yields reinforce its dominance. Some analysts see the delay in hostilities as a pause rather than a peace. This climate of uncertainty supports the dollar’s strength.

---

Yen, Aussie, Kiwi: Risk-Off Writes the Price

AUD/USD 0.6963 | NZD/USD 0.5825 | USD/JPY 158.68 | GBP/JPY 212.50

The Australian dollar fell to $0.6963, pulling back from a six-week high. Australia's S&P Global Manufacturing PMI eased to 50.1 in March, barely above contraction territory. Risk aversion drove the sell-off. The soft PMI gave sellers a narrative to run with.

The New Zealand dollar tracked the Aussie lower, trading at 0.5825. Both antipodean pairs moved on risk sentiment rather than domestic data.

USD/JPY traded near 158.68. Japan's core consumer inflation slowed to 1.6% in February, below the Bank of Japan's 2% target for the first time in nearly 4 years. That reading ties the BoJ even more closely to its accommodative stance and complicates the case for further rate hikes. Prime Minister Takaichi announced Japan will release oil from joint stockpiles by the end of March to cushion domestic energy costs. Meanwhile, two tankers carrying Iranian crude sailed for Indian refiners after Washington temporarily lifted sanctions, a sign that energy supply chains are adapting, if awkwardly.

GBP/JPY sat at 212.50. The cross captures the wider policy divide: a BoE signalling readiness to act and a BoJ the data has just constrained.

Traffic stays disrupted at the Strait of Hormuz, where one-fifth of the world’s oil and gas passes through this choke point. The war could cause lasting damage to infrastructure, with energy prices staying higher for longer and bond and equity prices falling.

The energy shock ripples through every currency pair. Weakness in the yen and commodity currencies reflects the global scramble for supply. This macro shift redefines trade balances and inflation targets. The current landscape demands a broad view of how energy dependence drives currency value.

---

Current Rate Table:

(Rates indicative at time of writing.)

---

Market Lookahead

Tuesday, 24 March

• UK, Eurozone, US Flash PMIs (March)
• ECB speakers: Machado, Cipollone, Lane
• Fed’s Barr speaks

Wednesday, 25 March

• Australia’s CPI (Feb)
• UK’s CPI, PPI, RPI (Feb)
• ECB President Lagarde speaks
• Germany IFO Business Climate (Mar)
• US Import/Export Prices (Feb)

---

Stay Ahead in the Currency Game

Whether you're a daily FX trader or handle international transactions regularly, our 'Currency Pulse' newsletter delivers the news you need to make more informed decisions. Receive concise updates and in-depth insights directly in your LinkedIn feed.

Subscribe to 'Currency Pulse' now and never miss a beat in the currency markets!

---

Ready to act on today’s insights? Get a free quote or give us a call on: +44 (0)20 7740 0000 to connect with a dedicated portfolio manager for tailored support.

---