Major currency pairs remained in tight trading ranges at the start of the week as investors balanced escalating Middle East conflict against key central bank decisions and upcoming inflation releases. The US Dollar Index held below 101.00, while the People's Bank of China (PBOC) kept its one-year and five-year loan prime rates unchanged at 3.00% and 3.50%, respectively, offering limited impetus to regional currencies. The Australian dollar edged marginally higher near 0.7000 against the greenback, while the New Zealand dollar firmed ahead of Tuesday's quarterly CPI data.
Geopolitical risk dominated energy markets. Escalating hostilities between the United States and Iran led to Iranian strikes on US assets and a warning from the Islamic Revolutionary Guard Corps that the Strait of Hormuz is unsafe for petrochemical transit. This sent Brent crude toward $90 and West Texas Intermediate above $83.50, injecting a persistent supply shock premium. The Indian rupee weakened to around 96.46 per dollar as higher oil prices compounded foreign equity outflows.
In Europe, the euro and British pound showed modest resilience. The EUR/USD traded slightly below 1.1450 with limited direction, while GBP/USD held above 1.3450 amid the UK's political transition. Andy Burnham is set to become the seventh prime minister in a decade, with Shabana Mahmood expected as finance minister, fostering fiscal conservatism. Sterling's recent strength has been underpinned by improving real yields and low forex volatility, though analysts caution that further upside may face technical barriers.
Broader macro themes also influenced markets. US CPI registered its largest monthly drop since April 2020, pulling annual inflation to 3.5%, yet energy bottlenecks continue to cloud the outlook for the Federal Reserve, Bank of England, European Central Bank, and Bank of Japan. Upcoming high-impact data—including Canada's CPI, UK employment, ECB rate decision, and global PMIs—are expected to reinforce the delicate balance central banks must strike between cooling inflation and fragile growth. Currency markets, thus, remain largely in a wait-and-see mode.
