Ahead Today
G3: EU CPI
Asia: South Korea PMI
Market Highlights
The US sent conflicting signals around how long a war with Iran might last as Israel launched new airstrikes, with President Trump saying that there was no fixed timeline even as the US had initially projected four to five weeks. Meanwhile, Bloomberg News reported that the UAE and Qatar are privately lobbying allies to help them persuade President Trump to reach for an off-ramp that would keep US military operations against Iran short, and the countries are seeking to build a wide coalition to advance a swift and diplomatic end to the conflict. There were also mixed signals as to what was happening in the Strait of Hormuz – the key oil chokepoint where 20% of global oil trade flows. A general in Iran’s Revolutionary Guards threatened to “burn any ship” seeking to navigate the Strait of Hormuz. Our best sense is that there is some level of trade flow disruption through the Strait right now but this is partly driven by rising insurance and freight costs rather than active enforcement of any blockage right now. There has been also some actual shut down in production in gas production in Qatar, and this has also caused a spike in LNG prices especially in Europe and Asia.
For better or for worse, our new FX forecast profile published overnight shows a stronger Dollar and weaker Asian currencies relative to our previous expectations driven by the Middle East conflict, but with an implicit base case assumption of a fading of oil prices in 2Q2026. Importantly as well, we think geopolitical risk premia will linger and will not completely fade, and as such the levels of Dollar strength/Asian FX weakness has been front-loaded generally into 1H2026 (see Global FX Monthly March 2026)
The principles we highlighted in our previous note still holds for Asia FX and rates markets (see What if oil prices spike further for Asia?). We think the oil sensitive currencies such as INR, PHP and KRW are more vulnerable, and perhaps this time around THB could also fall into the mix given a combination of tourism disruption and increasing curbs on gold transactions recently announced by the central bank this week. This would be even more so if oil prices were to spike further towards the US$90/bbl-100/bbl levels on a sustained basis. Meanwhile, the likes of MYR and CNH will likely be more resilient in a Asia FX context. We think Asian central banks will unlikely hike rates but sustained oil price increase will likely result in some central banks such as the Philippines and Indonesia pausing on rate cuts, while markets will likely further price out rate cuts from the likes of India and South Korea.