Dollar and Oil Tighten Their Grip (16-20 March)

Financial markets began the week under the influence of escalating tensions in the Middle East and persistently high energy prices, factors that have strengthened the US dollar and pushed global bond yields higher.

Commodities and currencies are adjusting to shifting expectations for central bank policy, while new economic data from the United States and China offer a conflicted outlook of global growth and inflation pressures.

Currencies

Dollar Index: The US dollar index rose above 100.3 on Friday, its highest level since May 2025, marking a second weekly gain as capital moved into defensive assets during the escalating standoff with Iran. US Defense Secretary Pete Hegseth said Washington is preparing its largest strike wave against Iran, increasing uncertainty in global markets. Oil prices stayed near multi-year highs, supporting the dollar. Attention now turns to next week’s Federal Reserve meeting, where rates are expected to remain unchanged, with markets currently pricing only one rate cut in 2026.
Euro: The euro slipped below $1.15, reaching its lowest level since late July as the stronger dollar and oil prices above $100 per barrel weighed on the currency. Europe’s heavy reliance on energy imports makes the region particularly sensitive to rising oil costs. Markets are currently pricing two possible ECB rate increases this year, while President Christine Lagarde is expected to address inflation risks at the upcoming policy meeting.
British Pound: The British pound fell below $1.33, its lowest level since early December, after UK GDP showed zero growth in January, while production output slightly contracted, according to the Office for National Statistics. Oil prices above $100 per barrel have also raised inflation concerns. As a result, expectations are growing that the Bank of England may keep rates high for longer, with markets pricing a possible rate increase later this year.
Japanese Yen: The Japanese yen traded near 159.4 per dollar, close to its weakest level since July 2024, increasing speculation about possible intervention. Finance Minister Satsuki Katayama said authorities are ready to act if necessary. Bank of Japan Governor Kazuo Ueda warned that yen weakness could raise imported inflation, particularly as oil surged after Mojtaba Khamenei signaled keeping the Strait of Hormuz effectively closed during ongoing regional tensions.

Commodities

Gold: Higher Yields Pressure Prices

Gold slipped below $5,050 per ounce as the stronger US dollar and reduced expectations for interest rate cuts outweighed its defensive appeal. The currency strengthened following the largest wave of strikes on Iranian targets and the effective closure of the Strait of Hormuz.

Rising Treasury yields also added selling pressure, placing gold on track for a second consecutive weekly decline.

Brent Crude: Oil Breaks Above $104

Brent crude climbed about 3% on Sunday night, rising above $104 per barrel, its highest level since July 2022, as the Middle East confrontation entered its third week following US strikes on military sites on Kharg Island. Over the weekend, Donald Trump warned that Iran’s export infrastructure, handling around 90% of the country’s oil shipments, could become a target, increasing the risk of broader retaliation.

Meanwhile, the IEA said last week’s record 400-million-barrel strategic reserve release will be immediately available in Asian markets.

Silver: Dollar Strength Extends Losses

Silver dropped below $83 per ounce, marking a third consecutive decline as the stronger US dollar weighed on precious metals during the ongoing Iran standoff. Statements from leaders in Tehran and Washington indicate the confrontation shows little sign of easing.

With expectations for the next Federal Reserve rate cut pushed further out, silver is heading for a weekly loss exceeding 2%.

Fixed Income

US 10-Year Treasury Yield: The US 10-year Treasury yield climbed to 4.27%, approaching a four-week high as the confrontation with Iran intensified. US Defense Secretary Pete Hegseth said Washington is preparing its largest wave of strikes so far, adding to market uncertainty. Energy prices have remained high, reinforcing inflation concerns. The benchmark yield rose nearly 13 basis points during the week, reflecting worries about higher energy costs and potential fiscal pressures linked to the conflict. Attention now turns to the next Federal Reserve meeting, with market pricing indicating only one rate cut expected in 2026.
UK 10-Year Gilt Yield: The UK 10-year gilt yield moved above 4.7%, reaching its highest level since October 9, as expectations grew that the Bank of England may raise interest rates later this year. High energy costs have reinforced concerns about renewed inflation pressure. At the same time, data from the Office for National Statistics showed the UK economy stalled in January, with services activity flat and production output slightly lower.
Japan 10-Year Government Bond Yield: Japan’s 10-year government bond yield rose above 2.21%, nearing a one-month high after Bank of Japan Governor Kazuo Ueda warned that a weaker yen could intensify imported inflation as energy costs increase. He noted that exchange rate movements now play a larger role in shaping inflation and policy decisions. Energy prices jumped after Mojtaba Khamenei signaled keeping the Strait of Hormuz effectively closed, while tensions between Tehran and Washington continued without signs of easing.
Germany 10-Year Bund Yield: Germany’s 10-year Bund yield climbed to 2.96%, its highest level since October 2023, marking a second consecutive weekly rise. Concerns about inflation linked to developments in the Middle East have strengthened expectations that the European Central Bank may tighten policy further. Market pricing currently reflects two potential ECB rate increases this year, while ECB President Christine Lagarde is expected to outline measures aimed at protecting the eurozone economy from conflict-driven inflation pressures.

Economic Data

US Inflation Holds Steady

The US annual inflation rate remained at 2.4% in February 2026, unchanged from January and matching forecasts, marking its lowest level since May 2025. Energy costs moved higher, with fuel oil rising 6.2% and natural gas increasing 10.9%, while gasoline prices declined at a slower pace of -5.6%. Prices for used cars and trucks continued to fall, while food and shelter costs remained stable.

Monthly, CPI rose 0.3%, driven by shelter (0.2%), gasoline (0.8%), and food (0.4%). Core inflation stood at 2.5% annually, with a 0.2% monthly increase, both in line with expectations.

US Job Openings Rebound

US job openings increased to 6.946 million in January 2026, recovering from December’s five-year low of 6.550 million and exceeding the 6.7 million forecast. Despite the improvement, openings remain below the post-pandemic averages, pointing to a cooling labor market.

The largest number of vacancies appeared in leisure and hospitality, private education and health services, and trade, transportation, and utilities. Hires rose slightly to 5.295 million, while separations stayed near 5.1 million and quits held around 3.1 million, showing little change from the previous month.

Core PCE Signals Persistent Price Pressure

The US core PCE price index, the Federal Reserve’s preferred gauge of underlying inflation, increased 0.4% month-over-month in January 2026, matching December’s 10-month high and aligning with forecasts.

On an annual basis, the index rose to 3.1% from 3.0%, the highest level in nearly two years and still well above the Fed’s 2% target, indicating continued inflation pressure.

China Trade Surplus Surges

China recorded a trade surplus of $213.62 billion during the first two months of 2026, exceeding expectations of $196.6 billion and following the record $1.189 trillion surplus in 2025.

Exports jumped 21.8% year-over-year to $656.58 billion, accelerating from December’s 6.6% growth, supported by strong global demand. Imports increased 19.8% to $442.96 billion, the fastest expansion since early 2022, reflecting solid domestic consumption. Seasonal adjustments were applied to smooth Lunar New Year distortions, with the data released ahead of US President Donald Trump’s planned meeting with Xi Jinping.

Latest Analysis

Shipping Security Plan Calms Markets (16.03.2026)

Gold traded near $5,000 per ounce, steady after two consecutive weekly declines.

Detail

Is Volatility Being Priced Too High?

Financial markets occasionally display a striking contradiction.

Detail