The USD remained stable in the first trading session of the week and is heading towards its strongest monthly increase since July, amid investors being cautious about the impact of the prolonged conflict in the Middle East. The Japanese Yen fell below the important threshold of 160 yen/USD, raising concerns about the possibility of intervention by authorities.
Global financial markets fluctuated this month after conflicts significantly disrupted transportation through the Strait of Hormuz - a transit route for about 1/5 of global oil and gas flows, while pushing Brent oil prices up sharply and affecting monetary policy expectations.
The conflict began with attacks by the US and Israel on Iran on February 28 and then spread throughout the Middle East. Concerns about the possibility of expanding ground combat along with the participation of Houthi forces in Yemen in fighting have made market sentiment more cautious.
Pakistan said it is preparing to organize substantive exchanges to find a solution to the conflict in the coming days, while Iran affirmed its readiness to react if the US conducts an ground operation.
US President Donald Trump's assessment that Washington has conducted direct and indirect exchanges with Iran does not create much significant change in market developments.
In that context, the USD continues to be supported as investors look for more stable assets. The euro traded at 1.1512 USD, heading for a decrease of about 2.5% in March - the strongest monthly decrease since July. The British pound traded at 1.32585 USD, almost sideways in the session but still down about 1.7% in the month. The Dollar Index - a measure of the strength of the USD against a basket of six major currencies - was at 100.14 at the beginning of the trading session.
Mr. Chris Weston - Head of Research at Pepperstone - said that the probability of a scenario where the US deploys ground forces in Iran has changed significantly compared to just two weeks ago, when this was considered a less likely scenario. According to him, this makes the market maintain a cautious state and continue to prioritize fluctuation prevention measures.
Currently, the focus of market attention is still oil prices, when Brent oil contracts traded around 114.6 USD/barrel, up about 58% in March, the strongest monthly increase ever recorded.
Mr. Prashan Newnaha - Senior Interest Rate Strategist at TD Securities - said that the trend of the USD in the coming time depends heavily on oil price developments.
Along with that, the market is also monitoring assessments of the long-term impact of conflict on global economic prospects. Mr. Marc Chandler - Chief Strategy Officer at Bannockburn Capital Markets - said that central banks currently have to carefully consider the goal of price stability and supporting economic growth in the current context.
