Dollar's "Feigned Attack" Retreats by 100 Points, G10 Central Banks "Join Forces in Inflation Crackdown," Bulls and Bears Complete a Position Handover at Key Battleground

Reuters Finance APP News — This week, global financial markets have been dominated by intense geopolitical turmoil and soaring energy prices. Due to military actions by the US and Israel against Iran, Brent crude oil prices temporarily surged past $112, directly impacting global central banks’ monetary policy logic. The US dollar index initially rose to a high of 100.54 supported by safe-haven demand and expectations of Fed rate cuts, but later in the week, as the Bank of England, Bank of Japan, and Eurozone central banks collectively signaled aggressive rate hikes to combat imported inflation, long dollar positions were significantly profit-taking, causing the index to fall back to around 99.5. Currently, the market’s core contradiction has shifted from “growth slowdown” to “out-of-control inflation,” prompting investors to reassess the peak of global interest rate paths.

US Dollar Index: Surge and Reversal, Momentum Fading

Weekly Review: The US dollar index showed a clear “inverted V” pattern this week. Early in the week, driven by risk aversion, the index surged, reaching a high of 100.54, just shy of the November 2025 peak. However, as expectations of Fed rate cuts in 2026 plummeted and other G10 currencies strengthened due to rising rate hike expectations, the dollar sharply retreated on Friday, ultimately losing the 100 level and closing near 99.5. The long upper shadow on the weekly chart indicates heavy resistance above the hundred mark.

Economic Data/Events Summary: The Fed held interest rates steady as expected during this week’s policy meeting. Chairman Powell’s remarks were very cautious, emphasizing that it is too early to assess the long-term economic impact of the war. However, markets have already priced in reality: crude oil prices have risen about 50% since the outbreak of war, and rumors of a blockade of the Strait of Hormuz have heightened inflation concerns. The previously expected two rate cuts this year are now nearly impossible, reshaping expectations that supported the dollar early in the week, but leading to profit-taking at the weekend.

Institutional Views: Monex USA analysts note that the Fed’s signals show no interest in rate cuts in the near term, reflecting caution over inflation resurgence. Bank of America Global Research believes that markets have already priced in the Fed’s stance before official communication, and the collective hawkish shift among G10 central banks has eased the dollar’s upward momentum driven by oil prices. In the short term, the dollar index is unlikely to sustain a one-way rally.

Euro and Swiss Franc: Deep in Inflation Quagmire, Reversal Logic Switches

Weekly Review: The euro/dollar pair experienced a “sell-off then rebound” this week. Early on, the euro was pressured by a strong dollar, falling to around 1.1410. Later, as the ECB warned more about inflation risks, the euro launched a rebound, recovering to about 1.1570. The Swiss franc remained relatively resilient, with USD/CHF reaching a high of 0.7957 before retreating slightly to 0.7878, maintaining an overall upward channel since February.

Economic Data/Events Summary: The ECB kept rates unchanged at Thursday’s meeting, but the tone of the post-meeting statement turned notably hawkish. Lagarde explicitly warned that soaring energy prices are increasing inflation pressures. Meanwhile, risk aversion triggered by Middle East tensions initially boosted the dollar but also increased demand for the Swiss franc as a safe haven.

Institutional Views: Analysts point out that despite rising energy costs pressuring the eurozone’s growth, the ECB cannot ignore record-high inflation data. The market is now pricing in an earlier end to the ECB’s observation period and a shift toward rate hikes, providing short-term support for the euro.

Pound and Canadian Dollar: Tightening Expectations Strengthen, Focus Shifts Upward

Weekly Review: The GBP/USD rebounded strongly this week. After dipping to 1.3218 early on, it rallied for four consecutive days, eventually surpassing 1.3340, signaling a potential bottom. USD/CAD maintained an upward trend, closing the week around 1.3720, supported by the surge in oil prices boosting the commodity currency.

Economic Data/Events Summary: The Bank of England kept rates steady but signaled readiness to act, which caused UK government bond prices to plummet and yields to spike, pushing the pound higher. For the CAD, the sharp rise in oil prices provided core support, despite the dollar’s strength creating some offset, overall the currency’s focus remains upward toward 1.38.

Institutional Views: The market generally believes the BoE’s tolerance for inflation has reached its limit. Regarding the CAD, analysts say that as long as the Strait of Hormuz supply risks persist, the currency of the main energy exporter will continue to attract capital, with short-term targets around 1.38.

Japanese Yen: Policy Turning Point Emerging, Safe-Haven Attribute Returns

Weekly Review: USD/JPY experienced a volatile week. Early in the week, it surged close to 159.896, just shy of 160. Then, after the BOJ unexpectedly signaled a hawkish stance, the yen rebounded sharply, with USD/JPY falling to around 159.2 on Friday.

Economic Data/Events Summary: The BOJ’s hints at an earlier rate hike in April caught many arbitrage traders off guard. The Reserve Bank of Australia raised rates for the second consecutive month on Tuesday, reaffirming its commitment to fighting inflation, making it a leader among G10 central banks.

Institutional Views: Traders are cautious about BOJ intervention risks near the 160 level. The consensus is that as global inflation cycles restart, Japan’s long-standing negative or ultra-low interest rate policy will become unsustainable, and the yen’s safe-haven role is returning through policy tightening.

Looking ahead to next week, markets will face a “dual shock” of data and geopolitics. The global PMI data released on March 24 will reveal the real impact of the energy crisis on manufacturing, while CPI data from Japan, the UK, and Australia will directly influence their respective central banks’ rate hike urgency. Notably, Europe will enter daylight saving time next week, which may amplify volatility due to liquidity shifts. With the Iran-US conflict still unresolved, oil prices will continue to act as the “conductor” of the forex market. Although the dollar may see a short-term correction, any risk aversion-driven volatility before the Fed’s policy shift could trigger market “emotional safe-haven” moves again.

Q&A Module

Q: After the dollar index hit 100.54 and then reversed, does this mean the long-term bullish trend of the dollar has ended?

A: It’s too early to conclude that the dollar’s long bull run is over. This correction mainly reflects technical overbought conditions and profit-taking after positive momentum waned. Early in the week, the dollar’s strength was driven by safe-haven demand related to Middle East tensions and the fading of expectations for Fed rate cuts. However, as the index approached previous highs, markets recognized that other G10 central banks, like the UK and Japan, are also turning hawkish due to inflation pressures, reducing the interest rate differential’s upward push. In the short term, the dollar is consolidating, with key support around 99. If upcoming US PMI data remains strong, the dollar could retest higher.

Q: Why did the yen approach 160 despite the turmoil in the Middle East and soaring oil prices?

A: The traditional “yen as safe haven” logic is being overshadowed by “interest rate arbitrage.” Japan’s long-standing ultra-loose monetary policy has made the yen the cheapest funding currency globally. When war and inflation fears emerge, markets prefer the dollar as a safe asset, while concerns over high oil prices worsening Japan’s trade deficit lead to yen selling. However, this week’s developments show a policy shift: the BOJ is beginning to see inflation as an opportunity to tighten. Once this policy shift is confirmed, the yen’s safe-haven attribute will be released through short covering, and the 160 level will become a critical resistance that traders dare not cross.

Q: How does the surge in crude oil prices affect non-US currencies, and why do the Canadian dollar and euro behave differently?

A: Oil prices influence currencies mainly through “trade conditions” and “inflation transmission.” The CAD, as a typical energy currency, benefits directly from rising oil prices, improving its trade balance and fundamentals. The eurozone, as a major energy importer, initially sees oil price hikes as negative, pressuring the euro downward. But as oil-driven inflation spirals out of control, markets are forced to expect ECB rate hikes, which then support the euro. Thus, the euro’s weekly movement reflects initial cost pressures followed by a shift to hawkish expectations.

Q: With the upcoming release of multiple PMI reports next week, what pitfalls should investors watch for?

A: Investors should distinguish between “nominal prosperity” and “actual economic health.” Energy price increases due to Middle East tensions may push PMI input prices higher, inflating the index without reflecting genuine demand growth. Some PMI improvements may be driven by military orders or other one-off factors, lacking sustainability and not benefiting broad consumption. If PMI data shows strength mainly from cost pressures rather than demand, markets might react with “good data, dollar declines,” creating a confusing scenario.