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[MARKET ANALYSIS] DXY bid on haven flows, EUR eyes the G7 ministers meeting on energy for reprieve

The DXY is gaining strength primarily due to safe-haven flows amid escalating tensions in the Iran conflict, which is intensifying oil prices.

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[MARKET ANALYSIS] DXY bid on haven flows, EUR eyes the G7 ministers meeting on energy for reprieve

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  • DXY is stronger this morning and trades at the upper end of a 98.83 to 99.69 range, with the index buoyed by the ongoing Iran war. In brief, there are currently no signs of a near-term resolution of the war, with oil prices surging some 30% at one point. (See the Newsquawk analysis piece at 08:25 GMT for details)
  • Further upside for the index could bring into play a cluster of highs from late November 2025, and the key 100.00 mark on the 25th of November 2025; the high that day was 100.26. But, upside may be limited in the near-term as markets count down to the G7 ministers meeting at 08:30 GMT / 12:30 EDT. A source cited by the FT suggested a joint release in the range of 300-400mln barrels, 25-30% of the IEA's reserves, would be appropriate. For reference, the Ukraine-Russia war led to the IEA releasing some 182mln barrels in March and April 2022. Therefore, a release of 300-400mln barrels could spur some short-term pressure in the USD.
  • EUR and GBP both continue to extend losses, as the net-importers of oil face significantly higher energy prices, stoking inflationary fears. As such, money markets now fully price in two ECB hikes in 2026 (vs none pre-war); markets now assign a 50% chance of a hike at the BoE (vs three cuts in 2026 pre-war). Elsewhere on a domestic footing, focus has been on the Baden-Württemberg election in Germany. The Greens won the election, whilst the CDU (29.7%) extended on its standing from the last election; importantly, the SPD fell to 5.6% (prev. 11%), which may stoke fears for Chancellor Merz, and the standing coalition. Next up, Rhineland-Palatinate votes on the 22nd of March; a defeat there would raise questions on regional political stability for Merz.
  • Havens (CHF & JPY) also extend losses, given both are net-importers of energy. For the CHF specifically, Switzerland has voted to introduce individual taxation; the government believes that the reform could bring back around 60k people to the labour force, and boost GDP by around 1%. As for Japan, USD/JPY continues to advance into “intervention territory”, which has been seen around 158-160. However, it can be argued that any attempt to intervene may prove to be inconsequential, as recent strength in oil prices show little sign of abating.
Context

With the G7 ministers meeting looming, there are expectations for a potential strategic oil reserve release which could provide temporary pressure on the USD; conversely, the EUR and GBP are under pressure from heightened energy costs, reflecting a potential shift in monetary policy expectations. Traders should watch these dynamics closely, as they could influence cross-currency movements significantly.

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