USD powered higher, posting its best two-day rally since February 2025 as Trump warned Iran-related attacks could last weeks, sending oil and gas prices surging and spurring fears of sticky inflation. US 10-year yields rose to 4.07% and the USD Spot Index hit its highest since Jan 21.
EURUSD slid to its lowest since November, with gas prices up 34%. JPY gained showing haven traits, while AUD fell amid risk off flows and despite hawkish RBA comments.
GBPUSD hit a three-month low, crashing through key support at the January lows, despite markets paring BoE rate-cut bets. OBR UK forecasts showed unemployment peaking this year and GDP growth slightly downgraded to 1.1% for 2026, but markets remained focused on geopolitics and energy-driven risk, leaving GBP vulnerable.
*Daily move - against G10 rates as of 17:00 GMT, 04.03.26
** Indicative rates - interbank rates as of 17:00 GMT, 04.03.26
Escalating Middle East tensions have hit risk sentiment, driving a demand for USD this morning as well as rising oil prices supporting the greenbank. AUD underperformed as softer household consumption in Australia’s 4Q GDP eased pressure on the RBA to hike, leaving it vulnerable if geopolitical tensions drag on. EUR and GBP edged lower with geopolitics firmly the dominant near-term FX driver.
Focus will remain on final services PMIs across the G10, with Eurozone, UK, and US releases but domestic data will likely be considered 2nd tier data given the US-Iran war.
In the US, ADP employment is forecast at 50k, slightly higher than January’s 22k, the ISM Services Index is expected at 53.5. With USD demand still strong amid geopolitical and energy risks, any upside surprise in US activity could reinforce USD demand. Overall, expect risk-sensitive FX flows to continue being shaped by energy prices, geopolitics, and inflation dynamics.
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