USD

Renewed fears of escalating hostilities in the Middle East kept the dollar supported on Thursday. Oil prices rose, and US equities retreated from record highs, while Treasury yields pushed higher and the dollar index rose to around 98.8. Domestically, S&P Global PMIs indicated that US manufacturing output accelerated, and services activity moved back into expansion, but output price indices also jumped, reflecting the pass‑through of energy costs, even as weekly jobless claims ticked higher. Looking ahead, today’s calendar is light for the US, which should ensure that markets remain sensitive to headlines from the Middle East, with few other distractions. That means safe‑haven flows are likely to keep the dollar firm into the weekend unless geopolitical tensions ease materially.

EUR

The euro retreated on Thursday as risk aversion prevailed and eurozone activity data disappointed. The flash Eurozone PMI showed the composite index dropping back below the 50‑point threshold, with services contracting and input costs jumping sharply as businesses grappled with supply disruptions caused by the war in the Middle East. That was enough to keep EURUSD trading under pressure in concert with dollar haven demand. Today’s key release is the German Ifo business climate survey at 09:00 BST, which is unlikely to offer much respite. Consensus looks for a modest improvement after March’s decline, but we think any rebound will be limited given worsening supply conditions. With risk sentiment fragile, we expect the euro to remain under pressure in the near term.

GBP

Sterling softened yesterday even as UK data surprised to the upside. The PMI report showed the composite index rising to 52.0, but the improvement was driven by manufacturers building inventory in anticipation of supply disruptions; input costs jumped at the fastest pace since 2022. Risk‑off flows and a firm dollar pushed GBPUSD back towards the mid‑1.34s overnight, with this morning’s March retail sales figures doing little to reverse that price action. Headline sales rose 0.7% MoM, and 1.7% YoY, more than markets had anticipated. But with the Office for National Statistics noting that petrol sales surged as motorists rushed to fill up amid a jump in fuel prices, that looks more like panic buying than a sustainable improvement in demand conditions. Indeed, non‑fuel sales rose by a much less spectacular 0.2%. If the BoE’s decision maker panel later today paints a broadly similar picture, that should be enough to keep the MPC on hold next week, and to push back on Bank Rate hike expectations. This, alongside fragile risk sentiment stemming from Middle East developments, leaves us looking for further GBPUSD softness ahead of the weekend.

CAD

The Canadian dollar edged lower for a third consecutive session on Thursday, seeing USDCAD test .37 overnight. Investors were rattled by reports of continued blockades in the Strait of Hormuz, which drove crude prices higher and raised concerns about further inflationary pressures. Closer to home, Canadian producer prices jumped 2.4% in March on the back of higher energy and chemical prices, reinforcing the narrative that supply‑side shocks could be filtering through to domestic costs. But with the dollar benefiting from safe‑haven flows, the intraday trend for the loonie was dictated more by global risk appetite than by local data. Today’s domestic highlight is February retail sales at 13:30 BST; consensus expects a modest decline after strong January figures. Regardless, we expect CAD to remain vulnerable ahead of next Wednesday’s Bank of Canada rate decision. With geopolitics dominating sentiment, we look for USDCAD to remain on the front foot, likely consolidating above 1.37.

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