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The USD rose and fell with global oil prices after Wednesday’s FOMC meeting. However, the DXY Index declined more sharply from 100.3 to 99.2 overnight, below its post-FOMC low of 99.5. Brent crude oil prices did not decline below Wednesday’s low of $100 per barrel; it fell from $119 to $109 on US President Donald Trump’s remarks downplaying a never-ending war. While the duration of the Iran conflict remains a guessing game, markets are finding firmer ground amid the widening divergence in global monetary policy responses to higher oil prices, following this week’s heavy central bank meeting schedule.
First, the Fed’s inflation stance at the March 19 FOMC led markets to take out the Fed cuts priced in for 2026. However, markets did not price in hikes, respecting the Fed’s decision to maintain the single cut pencilled in the Summary of Economic Projections. Conversely, markets started to price in 25-bps hikes at the next central bank meetings in Japan, the Eurozone, the UK in April, and Australia in May. 
Although the European Central Bank did not pre-commit to a particular rate path, it elevated price stability as the top priority. Some ECB officials told the media that the governing council would likely discuss rate hikes at its next meeting on April 30, prompting markets to price in three hikes in 2026. Similarly, markets also discounted three rate hikes for the Bank of Englanddespite its attempts to temper expectations. This recalibration stems from the MPC’s collective readiness to tighten policy to neutralize second-round inflationary pressures triggered by the energy crisis. The Swiss National Bank signalled a tolerance for a stronger CHF by acknowledging that inflation is set to accelerate in the coming quarters, sidelining its narrative of returning to negative interest rates, and officially dropping its long-standing characterization of the CHF as overvalued or highly valued.
GBP and EUR rebounded by 1.3% overnight following losses of 0.7% on Wednesday. CHF recovered partly by 0.6% vs. its previous day’s loss of 1%. While EUR/USD’s downside risks below 1.15 have abated, if faces resistance at 1.16-1.17. GBP/USD could pave the way for more upside if it breaks above the past fortnight’s resistance at 1.3450. USD/CHF needs to break below its week-long range between 0.7850 and 0.7950 to extend its downside.
USD/JPY has entered a tactical retreat after peaking near the 160 threshold, a level that has once again proven to be a formidable line in the sand for Japanese policymakers. The market is currently unwilling to test Finance Minister Satsuki Katayama’s explicit threats of decisive steps and physical intervention. Following the Bank of Japan’s decision to hold rates at 0.75%, Governor Kazuo Ueda noted inflation risks from JPY weakness, higher energy prices, and wage negotiations. With BOJ policy board member Hajime Takata continuing to dissent in favour of an immediate hike to 1%, market pricing for an April or June tightening has solidified. Both the government and the BOJ now view persistent JPY weakness as a primary driver of imported cost-push inflation, capping USD/JPY’s upside and shifting focus toward a correction of this month’s war-driven rally from 156 to 160.
Quote of the Day
“Gold, on the contrary, though of little use compared with air or water, will exchange for a great quantity of other goods.”
David Ricardo
March 20 in history
London's famous Burlington Arcade opened as the world's first shopping arcade in 1819.
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