The US Dollar (USD) maintained its strength throughout the week, buoyed by risk aversion stemming from an energy shock linked to the ongoing Middle East conflict and the haven appeal of the Greenback. The British Pound (GBP) held above the 1.3300 mark against the USD but was set to finish the week with a 0.20% loss, contributing to monthly losses exceeding 1% for GBP/USD [1]. The US Dollar Index (DXY), which tracks the USD against six major currencies, hovered near 99.94 on Friday, virtually unchanged for the day but poised for weekly gains of over 0.45% [1]. According to another source, the DXY surged above the key 100.00 level earlier in the week before pulling back to 99.85, indicating a modest pause in upside momentum but remaining broadly supported by geopolitical tensions [3].
US President Donald Trump announced a 10-day delay in planned military strikes on Iran’s energy infrastructure, extending the deadline to April 6. This initially led to a drop in Oil prices, but the reversal of the move and the closure of the Strait of Hormuz by the Islamic Revolutionary Guard Corps (IRGC) kept sentiment negative and Oil prices elevated, fueling inflation concerns [1][3]. Wall Street posted losses, and the USD was the strongest against the Swiss Franc, gaining 0.24% on the day, while GBP lost 0.11% against USD [2].
Economic data from the US showed a decline in consumer sentiment, with the University of Michigan Consumer Sentiment Index falling from 55.5 to 53.3, below forecasts of 54. The Consumer Expectations Index also dropped to 51.7 from 54.1. Inflation expectations for the next twelve months rose from 3.4% in February to 3.8%, while the five-year outlook remained at 3.2% [1][3]. Richmond Fed President Thomas Barkin commented that higher gasoline prices are weighing on consumer sentiment and could crowd out other spending. He noted that even before the oil shock, progress on inflation was at risk of stalling, and while unemployment remains low, the labor market feels fragile [2][3].
In the UK, Retail Sales fell by -0.4% MoM in February, a sharp reversal from January's 2% growth. Bank of England’s Alan Taylor stated that the bar for hiking interest rates is quite high, preferring to hold rates until the impact of Iran’s war on the economy is assessed [1]. Money markets have priced out the possibility of rate cuts by both the Federal Reserve and the Bank of England, with traders now expecting the Fed to raise rates by 5 basis points and the BoE by 78 basis points by year-end [1]. Meanwhile, traders are pricing in 2-3 ECB hikes by year-end, and expectations for Fed rate cuts are being trimmed, with some seeing the possibility of a hike later this year [3].
Technical analysis shows GBP/USD trading at 1.3311 with a mildly bearish bias, as it remains capped by descending resistance and below clustered moving averages near 1.35 [1]. EUR/USD edged higher on Friday, trading around 1.1545 after recovering from a daily low at 1.1501, as the USD pulled back from intraday highs [3].
CONCLUSION
The US Dollar remains resilient amid heightened geopolitical risks and elevated Oil prices, with market participants repricing interest rate expectations for major central banks. Weak consumer sentiment and rising inflation expectations are fueling concerns, while GBP and EUR face pressure from both domestic and global factors. The outlook remains uncertain, with central banks signaling caution and traders anticipating further tightening rather than cuts.