The week of 16 to 20 March 2026 was among the most consequential for FX markets in recent memory: six central bank decisions in 48 hours, Brent crude approaching upwards of $96 a barrel, and a military conflict reshaping the global rate outlook.
It was not supposed to be like this. At the start of 2026, the consensus was clear: the Fed would cut three times, dollar sentiment was poor, and currency markets were drifting in an orderly world. Then on 28 February the US-Israel military conflict with Iran began, and the script was torn up entirely.
"US dollar sentiment was terrible and the dollar fell sharply. The Fed was expected to cut three times in 2026 … That is no longer the case." MUFG FX Weekly, 23 March 2026.1
By the week of 16 to 20 March, traders were navigating one of the most complex macro environments in years. Six central bank decisions landed within 48 hours. Brent crude was over $96 per barrel. Tanker traffic through the Strait of Hormuz was down roughly 70%. The dollar, written off in January, was reasserting itself as the world's dominant safe haven currency. As MUFG noted in their 23 March weekly, sentiment had been "terrible" just weeks earlier. It no longer was.
| Pair / Asset | Level | Direction |
|---|---|---|
| GBP/USD | ~1.29 to 1.30 | ▼ Bearish |
| EUR/USD | ~1.156 to 1.157 | ▼ Bearish |
| USD/JPY | ~157 to 160 | ■ Intervention risk |
| Brent Crude | ~$96/bbl | ▲ Near cycle highs |
The Fed's Hawkish Pivot Changes the Calculus
The Fed's decision to hold at 3.50 to 3.75% was expected. What wasn't was the tone. Powell's acknowledgement that inflation progress had stalled, driven by the energy shock from the Middle East, killed hopes of multiple cuts. Markets had priced three reductions at the start of the year; by 20 March just a 50% chance of even one remained.2
Capital Street FX's 20 March analysis noted the dollar's yield advantage had become structurally supportive, with the Fed at 3.75% against EUR at 2.15%, CHF at 0.00%, and NZD at 2.25%. Both EUR/USD and GBP/USD were characterised as structurally bearish, and the DXY had broken decisively above 100.
The Iran Conflict and the Oil-FX Feedback Loop
The conflict that began on 28 February has created a feedback loop unlike anything markets have priced for years. Iranian naval forces warned shipping from the Gulf of Hormuz, and tanker traffic through the strait, which carries over a tenth of global crude, fell by roughly 70% at its worst.3
Convera warned that any move by Iran to fully disrupt Hormuz flows could push Brent even higher, reinforcing the dollar's safe haven bid. As of 23 March, a 48-hour ultimatum from President Trump, demanding Iran reopen the strait or face destruction of power facilities, was approaching midnight and markets were watching closely.
Geopolitical risk: The Strait of Hormuz carries over a tenth of global crude supply. Tanker traffic disruption at the levels reported, roughly 70% at worst, represents an oil supply shock with few modern precedents. Any escalation modelling carries unusually wide uncertainty bands.
Central Bank Scorecard: Six Decisions, One Theme
Six decisions in 48 hours, all holds. Taken together they told a coherent story: the assumed rate cutting cycle of 2026 has been overtaken by events, and policymakers are recalibrating to an inflationary environment shaped as much by geopolitics as by domestic demand.
| Central Bank | Decision | FX Implication |
|---|---|---|
| Federal Reserve | Hold 3.50 to 3.75% | Hawkish tone; just one cut now priced for 2026; DXY broke above 100 |
| Bank of England | Hold 3.75% | GBP/USD in bearish phase; markets now pricing possible hike |
| ECB | Hold 2.15% | EUR/USD broken from 1.208 high; bearish trend intact |
| Bank of Japan | Hold | JPY −2.0% since conflict began; five MoF verbal warnings; intervention risk rising |
| SNB | Hold 0.00% | CHF −3.0% since conflict, unexpected given traditional safe haven status |
| Norges Bank | Hold (expected) | NOK supported by energy prices; rate hike now more likely than cut |
| Bank of Canada | Hold | CAD best performing G10 currency ex USD; down just −0.1% since hostilities began |
Three Currency Stories That Stand Out
The Canadian Dollar
Of all G10 currencies, the loonie has weathered the conflict most comfortably, down just 0.1% against the dollar. Canada carries the largest net energy balance relative to GDP among IMF reserve currency economies, equivalent to roughly 4.4% of nominal GDP per National Bank Financial's March strategy note.4 As an energy exporter it benefits from rising oil prices in a way most peers simply cannot, and MUFG ranks the CAD as the top performing G10 currency after the dollar since hostilities began.
The Japanese Yen
Japan's situation is the most structurally troubling in the G10. The yen has weakened nearly 2% since 28 February, and Finance Minister Katayama has issued five verbal warnings since 13 March, stating that moves do not reflect fundamentals and that the MoF would "fully respond" to excess. Yet the structural case for weakness is hard to dismiss: rising oil will widen Japan's energy deficit by close to 1.4% of GDP annually even in a moderate scenario per MUFG, while diverging global yields raise hedging costs and reinforce outflows through NISA accounts. Verbal intervention alone is becoming difficult to sustain.
Sterling
Sterling's performance has been nuanced. The pound has held up better than many peers because both the BoE and ECB are now priced by markets as potentially delivering hikes, a significant shift from earlier in the year. Even so, Capital Street FX places GBP/USD in a confirmed bearish phase below the 0.5 Fibonacci level at 1.34515, targeting 1.3212 then 1.30. Tricio Advisors concurs, noting that Cable is still searching for a floor.5
Outlook: Two Scenarios
| ▲ De-escalation / Oil Retreats | ▼ Escalation / Hormuz Disrupted |
|---|---|
| EUR/USD recovers lost ground; yen firms; Cable finds a floor | Risk-off deepens; USD strength extends into Q2 |
| Fed cuts potentially restored to three in H2 2026 | USD/JPY tests 2024 high of 161.95; coordinated intervention possible |
| Broad USD depreciation expected in H2 (National Bank Financial) | EUR and GBP face renewed selling pressure |
| CAD remains well supported | Safe-haven dollar bid continues to dominate |
The defining characteristic of FX markets right now is that its two dominant drivers, central bank policy and geopolitical risk, are moving simultaneously and in ways that resist easy modelling. The rate narrative has been rewritten in three weeks. Currencies that seemed most vulnerable at the start of the year have reasserted themselves; those that looked best positioned are under renewed structural pressure.
The next critical event is the expiry of Trump's ultimatum to Iran, whose midnight deadline falls tonight. What happens in the hours that follow will set the tone for the rest of Q1 and will likely determine whether the dollar's strength is a durable trend or a temporary safe haven overshoot. From a London desk, the only sensible posture is vigilance.
Footnotes
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MUFG FX Weekly (opens in a new tab), 23 March 2026. ↩
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Capital Street FX Market Analysis (opens in a new tab), 20 March 2026. ↩
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DailyForex Weekly Forex Forecast (opens in a new tab), 1 March 2026; Convera FX Trends (opens in a new tab), March 2026. ↩
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National Bank Financial Economics and FX Strategy (opens in a new tab), March 2026. ↩
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Tricio Advisors Currency Matters (opens in a new tab), March 2026; MUFG Monthly FX Outlook (opens in a new tab), March 2026. ↩