USD

The dollar started Thursday on a strong footing as traders digested the Federal Reserve’s decision to keep the funds rate unchanged, and Chair Powell’s hawkish accompanying tone. This, alongside a surge in safe‑haven demand after new attacks on Middle Eastern energy infrastructure, lifted the DXY index back above 100 early in the session. However, by the London close, the greenback had given back these gains, continuing to trade lower overnight, prompted by even more hawkishness from the ECB and BoE, and by easing oil prices. For today’s session, there are no significant US data releases, leaving the dollar at the mercy of geopolitical headlines and further commentary from Fed officials. Unless Middle East hostilities unexpectedly subside or a new risk‑off shock emerges, we expect the dollar to trade sideways to slightly weaker as investors focus on whether other central banks follow through on hawkish rhetoric.

EUR

After an early drop toward the mid‑1.14s, the euro staged a sharp rebound on Thursday. The European Central Bank left its main rates unchanged, as expected, but it raised inflation projections to account for energy shocks and warned that a prolonged war in the Middle East could push price growth above baseline projections. The Governing Council also pledged to publish alternative scenarios assessing the conflict’s impact, prompting markets to price in the possibility of hikes as early as April or June, a narrative given further credence by “sources” stories overnight. Coupled with a retreat in oil prices, this has driven EURUSD back toward 1.16, with the pair having gained over 1% on the day. Looking ahead, eurozone data for the current account and trade balance are due this morning but should have limited market impact. Attention will instead centre on the ECB’s scenario analysis and any fresh comments from President Lagarde.

GBP

Sterling slipped early on Thursday as the Fed’s hawkish hold buoyed the dollar, but it recouped losses after the Bank of England left Bank Rate at 3.75 % and provided unexpectedly hawkish guidance too. The Monetary Policy Committee voted unanimously to hold rates and emphasised the need to assess the inflationary impact of the Middle East conflict. Markets took this as an endorsement of the pre-meeting rate path, which already priced in hikes over the coming year. The result was a sharp jump in gilt yields as traders accelerated tightening bets further, pricing a base case that sees Bank Rate rising to 4.50% by year-end. We see that as excessive, given weak domestic growth, building labour‑market slack, and having read the MPC’s guidance. The detail of the statement and the minutes is much more nuanced than the market reaction would suggest, signalling caution more than anything else. Still, the fallout saw GBPUSD rise above 1.34 overnight, continuing to trade at those levels this morning. With no major U.K. data scheduled today, sterling’s trajectory will be dictated by global risk sentiment and further consideration of yesterday’s BoE communications.

CAD

The Canadian dollar weakened earlier in the week when the Bank of Canada held its policy rate at 2.25%, signalling a balanced, data‑dependent stance, noting that rate cuts might have been on the table were it not for inflation risks from the Middle East conflict. This saw USDCAD rise towards the top of its recent range, stabilising on Thursday as traders repriced for hawkish moves from the ECB and BoE, and oil prices eased. Today brings Canadian retail sales for January and industrial product and raw materials price indices for February. Neither is likely to be a big market mover, meaning we see USDCAD consolidating around 1.37 in the near term unless geopolitical risks or today’s data surprise materially.

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