[MARKET ANALYSIS] DXY pauses after broadly strengthening yesterday on haven appeal

DXY: -0.1%

• Takes a breather after broadly gaining yesterday on haven appeal, with geopolitics dominating the tape, while data releases were firm as ISM Manufacturing PMI topped forecasts and prices paid soared, although the report took a back seat to the ongoing escalation surrounding Iran. Furthermore, JPMorgan wrote that the Iran escalation challenges the bearish Dollar view and it recommended tactically unwinding EUR/USD longs, while ING flagged three USD-supportive factors, including the US being less energy-import dependent than Europe/Asia, markets trimming Fed rate cut expectations with a bearish flattening in US yields, and the potential EM outflows on higher energy costs and fewer Fed cuts.

EUR/USD: +0.1%

• Lacks firm direction overnight after it recently slumped from near the 1.1800 level to the 1.1600 handle amid disruption concerns and as energy prices surged, while the latest EU HICP data looms.

GBP/USD: Flat

• Trades sideways near the 1.3400 level with little reaction seen to a cooling in UK shop price inflation, while UK Chancellor Reeves is set to deliver the Spring Statement later today.

USD/JPY: -0.1%

• Remains afloat in 157.00 territory after the prior day's dollar-driven advances but with price action contained overnight following several data releases from Japan including a rise in unemployment and stronger-than-expected quarterly capex, corporate profits and sales.

Antipodeans: AUD/USD +0.2% / NZD/USD +0.2%

• Edged mild gains amid upside in commodities and after the PBoC set the strongest reference rate setting since May 2023, although gains are limited amid the negative risk sentiment and mixed Australian data.

The DXY's slight pullback follows a strong performance driven by haven demand amid escalating geopolitical tensions, particularly related to Iran, which challenges bearish dollar positions. With firm ISM Manufacturing data suggesting robust domestic strength and potential shifts in rate expectations limiting future Fed cuts, the dollar may continue to attract support. Therefore, market participants should monitor geopolitical developments closely, as they could significantly influence currency pairs, particularly the USD's relationship with the EUR and other major currencies.