Markets face fresh volatility this week as the conflict in the Middle East threatens to spiral out of control, with the tone between Washington and Tehran growing increasingly confrontational, and the Strait of Hormuz no closer to reopening.
Last week’s key rate movements
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GBP/EUR – Down 0.5% on the week
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GBP/USD – Up 0.8% on the week
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EUR/USD – Up 1.1% on the week
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AUD/USD – Up 0.5% on the week
Pound (GBP)
There are several UK economic releases of note this week, the highlight of which may prove to be the UK’s latest PMIs. March’s preliminary figures will be the first real insight into how the war in the Middle East is impacting the UK economy and could lift the pound (GBP) if service sector growth showed resilience this month.
Euro (EUR)
This week also sees the publication of the Eurozone’s latest PMI figures. Expect the euro (EUR) to face headwinds if March’s preliminary figures show that private-sector growth was curbed by rising energy costs and geopolitical uncertainty.
US dollar (USD)
In the absence of any notable US economic releases, movement in the US dollar (USD) this week is likely to remain linked to market risk sentiment, with demand for the safe-haven currency likely to strengthen if there is a further escalation of tensions in the Middle East.
Australian dollar (AUD)
Australia’s latest CPI indicator is likely to act as the primary catalyst for movement in the Australian dollar (AUD) this week, with another strong inflation reading likely to stoke bets for further monetary tightening from the Reserve Bank of Australia (RBA).
South African rand (ZAR)
In addition to remaining sensitive to market risk appetite, the South African rand (ZAR) will also be influenced by the South African Reserve Bank’s (SARB) latest rate decision this week. While no policy changes are expected from the bank, how the Iran war is shaping the SARB’s inflation outlook will determine the direction of the rand in the latter half of the week.
Canadian dollar (CAD)
The commodity-linked Canadian dollar (CAD) may advance again this week if tensions in the Middle East continue to drive oil prices higher.
New Zealand dollar (NZD)
Notable NZD data is in short supply this week, likely tying movement in the New Zealand dollar (NZD) to market risk dynamics, and leaving the ‘kiwi’ vulnerable to losses if tensions in the Middle East continue to rise.
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