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USD
Safe‑haven demand lifted the dollar on Monday as renewed clashes in the Gulf undermined hopes of a durable ceasefire and kept oil prices above US$100. Investors were rattled by unconfirmed rumours of missiles striking a US warship, and by Washington sending destroyers through the Strait of Hormuz, a reminder that hostilities remain a key driver of FX markets. The dollar index gained roughly 0.3 %, and EURUSD threatened 1.17, while GBPUSD fell to the low 1.35s. This price action was largely in line with our expectation that risk‑averse flows would support the dollar and that rallies in G10 currencies would be transient without de‑escalation, though speculation around top-up JPY buying intervention by Japan’s MoF helped to contain excess dollar upside. Today, the focus shifts to US macro data, with the March trade balance, the ISM services survey, and JOLTS jobs numbers due alongside another round of Fed speakers. Given Monday’s stronger‑than‑expected factory orders and the energy‑driven rise in input prices, any upside surprise in services inflation could reinforce market expectations for the Fed to remain on hold and keep the dollar supported. We continue to see risks skewed to the upside for the dollar as long as the Middle East conflict is unresolved and safe‑haven flows dominate.
EUR
The euro drifted lower at the start of the week, trading around 1.17 overnight as geopolitical fears outweighed the absence of domestic catalysts. Thin liquidity due to a public holiday in much of Europe exaggerated the move, but the euro’s sensitivity to risk sentiment underscored our view that any rallies are likely to be fleeting without de‑escalation or a sustained decline in US yields. The latest European Central Bank survey released on Monday showed firms preparing for another wave of price increases if the war persists, reinforcing the notion that the ECB will remain cautious even as markets price multiple hikes for later in the year. Today’s calendar is light, leaving EURUSD to take its cues from US data and headlines out of the Gulf. We continue to expect the single currency to trade defensively given Europe’s reliance on imported energy and the potential for rising oil prices to squeeze growth. Without a clear improvement in risk appetite, we see upside limited and emphasise that our week‑ahead forecast called for a tactically stronger dollar.
GBP
Sterling underperformed its peers on Monday, falling to the low 1.35s as safe‑haven flows into the dollar intensified amid fresh clashes in the Strait of Hormuz. With UK markets closed for a public holiday, volumes were thin, but the move validated our view that sterling should trade defensively following last week’s “active hold” from the Bank of England. Elevated energy prices and concerns about imported inflation reinforce that assessment. There are no major UK data releases today, so GBPUSD will remain at the mercy of broader risk sentiment and US releases. We expect sterling’s rebound attempts to be capped unless there is a meaningful de‑escalation in the Middle East or a sharp decline in US yields. Looking ahead, markets will watch Thursday’s local elections as the next big upcoming risk event; until then, we see GBPUSD continuing to trade with a heavy tone consistent with our week‑ahead call for a firmer dollar and a cautious BoE stance.
CAD
Monday saw the Canadian dollar soften about 0.2%, with USDCAD rising toward 1.36 as investors grew nervous about reports of US and Iranian warships exchanging warnings in the Strait of Hormuz. Negative headlines boosted the greenback and spurred a sharp jump in Brent crude, yet the loonie could not capitalise on higher oil prices as risk aversion dominated. This performance matched our prior view that safe‑haven flows would limit CAD upside despite firm energy markets, and that USDCAD would trade within a 1.35–1.37 range. Domestic data were limited, though Canadian bond yields rose in tandem with US Treasuries. Looking ahead, today’s key releases are Canada’s March trade balance and April PMIs. The former should show a modest surplus but is unlikely to shift the dial; the latter is likely to see sentiment dented by the ongoing Middle East situation. With US data potentially reinforcing the Fed’s wait‑and‑see stance and oil prices driven by conflict headlines, we expect the loonie to remain range‑bound for now.