A series of significant geopolitical and economic developments have shaped major currency pairs this week. The escalation of conflict in the Middle East, specifically US and Israeli strikes on Iran and the resulting closure of the Strait of Hormuz, has driven a surge in energy prices and triggered safe-haven flows into the US Dollar (USD) across global markets [1][2][3]. This has led to broad USD strength, with the Greenback gaining against most major currencies [2].
For GBP/USD, the pair was nearly flat on Wednesday, closing around 1.3370, but has fallen sharply from its late-January high near 1.3870 and is now testing the 200-day EMA. The Pound Sterling is down about 1.4% on the week against the USD, making it one of the worst performers. The Office for Budget Responsibility (OBR) downgraded the UK's 2026 growth forecast to 1.1% from 1.4%, citing weaker-than-expected activity in late 2025 and rising unemployment. The OBR also warned that the Middle East conflict could have significant impacts on the UK economy. Surging energy prices have led markets to scale back expectations for a Bank of England rate cut at the March 19 meeting, with futures now pricing less than a 15% probability of a move [1]. Technical analysis indicates a mildly bearish near-term bias for GBP/USD, with downside pressure persisting and key support at the 200-day EMA around 1.3375 [1].
USD/JPY pulled back 0.42% to around 157.00 after approaching 157.90 earlier in the session. The pair has traded in a wide range between 152.00 and 159.00 since late January. The Japanese Yen has come under pressure due to Japan's heavy reliance on energy imports, with the Bank of Japan holding rates at 0.75%. Market volatility from the Middle East conflict has increased the likelihood that the BoJ will delay any rate hike in March. Technicals show a mildly bullish bias for USD/JPY, with the pair holding above the rising 50-day EMA and momentum indicators in overbought territory, suggesting persistent upside pressure [2].
AUD/USD rallied 0.5% on Wednesday to around 0.7080, rebounding from earlier lows near 0.7000. Despite the bounce, the Australian Dollar remains down about 0.65% over the past five sessions against the USD. Australia's Q4 GDP grew 0.8% (beating expectations of 0.6%), with annual growth at a three-year high of 2.6%, driven by government spending and inventory rebounds. The Reserve Bank of Australia raised rates to 3.85% in February, and the strong GDP data is likely to keep the RBA's tightening bias in place. Technicals for AUD/USD are mildly bullish, with the pair above both the 50-day and 200-day EMAs, though upside momentum is cooling [3].
Across all three pairs, the market focus is shifting to upcoming US data releases, including Friday's Nonfarm Payrolls and Retail Sales, which are expected to influence Federal Reserve policy expectations [1][2][3].
CONCLUSION
Geopolitical tensions and surging energy prices have driven safe-haven flows into the US Dollar, pressuring GBP, JPY, and AUD. The UK faces a downgraded growth outlook and diminished rate cut expectations, while Japan's rate hike prospects are fading amid market volatility. Australia's strong GDP supports a hawkish RBA stance, but the AUD remains under pressure from USD strength. Market participants are now closely watching upcoming US economic data for further direction.