After seemingly teasing the market ahead of the weekend that he was considering “winding down” military operations, President Trump issued Iran an ultimatum that threatens to escalate the conflict. He issued a 48-hour ultimatum that appears to expire around 7:45 pm ET today that if the Strait of Hormuz is not open, Iranian power plants will be attacked. Iran has reportedly carried out fresh strikes across the region today.
Equities and bonds have been pummeled. The dollar is racing higher. Gold (and silver) are offering new respite. The possibility that we are on the verge of a significant escalation of the conflict will deter investors today. There is no appetite for risk. As we noted when the war began, if this is World War Three, the market wants dollars.
Prices
G10
• The euro chopped lower ahead of the weekend. It had pushed above $1.16 after last Thursday’s ECB meeting. Although it remains within last Thursday’s range (~$1.1445-$1.1615), it has been pushed below $1.15 in Europe and looks poised to test the lower end. Options for around 2.55 bln euro struck at $1.15 expire tomorrow and another stack for around the same amount expires Wednesday. The low since last August was set earlier this month near $1.1410.
• The market has not given up on the JPY160 hurdle, and the disruption from the war and the jump in US rates may give the short-term participants the incentive to overcome it. It is bumping against the JPY159.65 area in the European morning. We suspect there will be some profit-taking after it is broken and look for the JPY160.40 area to cap it.
• A sharp rise in rates after the Bank of England meeting seeming to help lift sterling last Thursday to about $1.3465. It settled above the 20-day moving average for the first time since mid-February. Yet the continued rise in rates ahead of the weekend did not aid sterling, which was pushed back to $1.3300. It has been sold to about $1.3260 so far today. After being turned down from the upper end of this month’s range last week, sterling can now test the lower end, which is found around $1.3220.
• The Canadian dollar slipped ever so slightly last week, making it the worst performer in the G10, the only one not to have risen. The greenback is probing the CAD1.3750 area, the upper end of where it has been since late January. Initial potential may extend toward CAD1.3800-25.
• The Australian dollar spent most of last week between $0.7000 and $0.7100. It frayed both ends by around a fifth of a cent. It settled poorly and follow-through selling today sent it to new lows for the month today, near $0.6910. Last month’s low was near $0.6900. A convincing break could spur another cent loss.
EM
• The pre-weekend risk-off mood helped lift the dollar to the upper end this month’s range against the Mexican peso. The high for the week was seen ahead of the weekend near MXN17.9960. The risk-off environment lifted the greenback to a new high for the month, almost MXN18.0870 today. The next chart area of note is MXN18.10-MXN18.15.
• The dollar settled at a new high for the week against the offshore yuan ahead of the weekend, above CNH6.9050. It rose to a new two-week high today, near CNH6.9185. The upper end of this month’s range is in the CNH6.9350-CNH6.9450 area. The PBOC set the dollar’s reference rate today at CNY6.9041 after it was fixed at a new multi-year low ahead of the weekend (CNY6.8898).
• India seems particularly exposed to the war’s disruption and was vulnerable before the war began. The dollar approached INR93.98 today, a new record. It jumped by about 1.15% before the weekend and another 0.30% today. It was slightly below INR90.98 before the war began. Foreign liquidation of Indian equities reached a record at the end of last week, while selling of Indian bonds also continued. The INR95 is the next key psychological level.
Other Markets
• Stocks are getting smashed. Most of the large bourses in the Asia Pacific region were off 2.45% to 6.5%. Australia, New Zealand, and Malaysia fared best, losing 0.55%-0.75%. Europe’s Stoxx 600 is off 2%, as it slides for the fourth consecutive session. The S&P and Nasdaq lost 1.5% and 2%, respectively ahead of the weekend and are off around 0.8%-0.9% today.
• Bonds are being crushed. The 10-year JGB yield rose a little more than three basis points to almost 2.3%. European yields are jumping too. The 10-year UK Gilt yield is up nearly 11 bp and Italy’s 10-year BTP yield is up a little more than 12 bp. The German Bund is holding in best, with about a three basis point increase. 10-year US Treasury yield is slightly more than five basis points higher to push above 4.43%. Note that this week, the US Treasury plans to sell around $211 bln of coupons, including a two-year floating rate note and more than $250 mln of bills.
• Gold has stabilized after dropping nearly $400 an ounce earlier today and slipped below $4100. It approached the 200-day moving average (~$4091), which has not traded below since November 2023. For its part, silver, which ended last week slightly below $68, fell to nearly $61 today before recovering back to around $64.
• May WTI opened near $100.50 after closing last week, near $98.25. It rose to about $101.65 but is now a little below $100 in nervous trade. June Brent settled near $106.40 before the weekend and reached almost $110 today. Last week’s high was slightly above $112.
Data
• The Chicago Fed’s National Activity Index hardly draws attention in the best of times and today’s February report has been superseded by events. January construction spending is seen rising slightly after the 0.3% increase in December. The Atlanta Fed’s GDP tracker sees the economy expanding 2.7% this quarter after the disappointing revision of Q4 25 growth to 0.7% from 1.4% initially. The weaker growth points to a downward revision in Q4 productivity (from 2.8%) and higher unit labor costs (also from 2.8%), which will be announced tomorrow.
• Mexico reports January retail sales data today, but the focus is elsewhere. First, the central bank meeting on Thursday is the highlight of the week. The market has given up hopes of a cut later this year and now favors a hike. Second, Mexican and US officials meet to begin discussing reforms to the USMCA.
• Japan will report February CPI tomorrow, before the preliminary release of March PMI. The headline and core measures are seen slipping. The headline rate may dip to 1.4% from 1.5%, with the core measure, which excludes fresh food, falling to 1.7% from 2.0%. This would be the first time since March 2022 that the core is below the 2% target.
Reviewed by Marc Chandler
on
March 23, 2026
Rating:
