USD Rally Extends as Oil Prices Surge and Inflation Looms – What It Means for GBP and FX Markets

Key Highlight

• The US dollar continues to strengthen, marking five consecutive sessions of gains and its strongest monthly performance since late 2022, driven by ongoing safe-haven demand.
• Geopolitical tensions in the Middle East remain the dominant market driver, keeping oil prices elevated and supporting the dollar’s upward momentum.
• Upcoming UK GDP and Eurozone inflation data are critical near-term catalysts that could shift direction for both GBP and EUR.
• Reports suggesting a potential de-escalation in the Iran conflict have offered temporary market relief, though risks remain firmly in place.

Market Recap

Currency markets began the week with the dollar extending its rally, supported by persistent geopolitical uncertainty. Sterling weakened in line with most major currencies, while the Japanese yen outperformed amid increased rhetoric from Japanese officials around potential intervention to curb speculative FX moves.

Overnight developments created a mixed backdrop for risk sentiment. Markets reacted positively to reports indicating a possible willingness from the US to scale back military involvement in Iran, interpreting this as a step toward de-escalation. However, this was counterbalanced by continued aggressive rhetoric and fresh disruptions, including drone activity targeting oil infrastructure in Dubai, which pushed oil prices higher.

Despite these conflicting signals, markets leaned toward optimism, stabilising risk sentiment in the short term. That said, conditions remain fragile, and sentiment could shift quickly if tensions escalate further.

On the domestic front, the UK’s final Q4 GDP reading confirmed modest economic growth into the end of 2025. However, a notable drop in business investment highlights ongoing caution among firms, reflecting uncertainty in the global economic outlook.

Market Update

Today’s data calendar is particularly significant, with several releases likely to drive FX volatility.

Eurozone inflation is expected to rise sharply, with headline CPI forecast to jump to 2.6%. This increase is largely attributed to higher energy prices linked to geopolitical tensions. If inflation exceeds expectations, it may prompt the European Central Bank to take a more cautious stance on rate cuts, potentially lending support to the euro. Core inflation will also be closely monitored for signs of broader, more persistent price pressures.

In North America, Canadian GDP is expected to show little to no growth. Given recent strength in GBP/CAD, a weaker-than-expected figure could reinforce this trend. Meanwhile, US data including consumer confidence and job openings is anticipated to soften slightly, which could limit further dollar upside. However, ongoing geopolitical risks are likely to keep the dollar well-supported overall.

31st March 2026

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