USD had its best week in over a year, rising 1.4% as investors flocked to the currency’s safe-haven appeal amid escalating Middle East tensions and a sharp surge in Brent Crude Oil, which has jumped roughly 25% since the US and Israel struck Iran. Higher oil prices are fuelling inflation concerns and reducing expectations for Federal Reserve rate cuts, further supporting USD. Weak US data, including a 92k drop in nonfarm payrolls, had little lasting impact, as markets remain focused on geopolitical risk, oil prices, and demand for USD liquidity.
GBP has outperformed this week, supported by a sharp hawkish repricing in UK rate expectations, as rising energy prices push markets to question how much easing the Bank of England can realistically deliver this year. UK two-year gilt yields surged as much as 21bps, with traders largely pricing out further BOE rate cuts in 2026, helping underpin the currency, particularly against the EUR, where widening rate differentials have provided support.
The EUR has underperformed this week, slipping roughly 2%, as soaring oil energy costs are hitting growth and inflation simultaneously, keeping markets wary of the European Central Bank’s ability to normalise policy aggressively. With geopolitical tensions in the Middle East driving further energy risk premiums, the EUR has remained vulnerable, particularly against the safe-haven USD and rate-sensitive GBP.
*Daily move - against G10 rates as of 17:00 GMT, 06.03.26
** Indicative rates - interbank rates as of 17:00 GMT, 06.03.26
Oil prices briefly surged toward $120 per barrel amid escalating geopolitical tensions, before retracing part of the move after a Financial Times report indicated that G7 ministers may discuss a coordinated release of emergency oil reserves with the International Energy Agency (IEA) to stabilise markets and ease supply concerns. Any reprieve in the selloff could be short-lived with the Strait of Hormuz still shut as more Middle East producers curb production. Natural gas prices have also surged this morning and markets are now pricing in a rate hike by the BoE by end of the year and a 0.50% hike by the ECB over the same time. But nonetheless in these markets, EUR remains weak with USD continuing to be in demand.
This week, markets remain dominated by the Middle East conflict and energy risk, with Qatar’s LNG shutdown and ongoing disruptions at the Strait of Hormuz keeping oil and gas prices elevated. Most economic releases, including US CPI and PCE, German and French inflation, UK industrial data, and Japanese GDP revisions, are likely to take a backseat to geopolitical-driven safe-haven flows.
The GBP has been supported by hawkish BOE repricing and rising UK yields, but upside is limited. Continued gilt selloffs and higher long-dated borrowing costs could weigh on growth, especially if the job market softens while inflation remains elevated, with fiscal pressures also a subtle headwind.
The USD is likely to remain well-supported on safe-haven flows and rising energy prices, while EUR weakness continues, pressured by Europe’s energy import dependence and vulnerability to higher oil and gas prices. Overall, FX movements will likely track geopolitical and commodity developments rather than headline economic data.
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