Weekly Preview: US and UK Flash Manufacturing & Services PMIs, UK CPI

The USDX strengthened on Friday but remained on track for a notable weekly decline of 0.79% against a basket of major currencies. This downward trend comes as investors recalibrate their expectations for Federal Reserve policy, shifting away from previously anticipated rate cuts due to the inflationary threat of surging energy prices. While the Fed maintained its current rate range this week, Chair Jerome Powell noted that the full economic impact and duration of the ongoing Middle East conflict remain uncertain.

The greenback’s weekly slide was further fueled by a wave of hawkishness from other global central banks. The European Central Bank and the Bank of England both kept rates on hold but issued stern warnings regarding energy-driven inflation, with the latter signaling a readiness to act. Similarly, the Bank of Japan surprised markets by leaving the door open for a potential rate hike as early as April, providing support for the Yen. Meanwhile, the Australian Dollar benefited from a second consecutive rate hike by the RBA, as policymakers across the globe adjust to a "higher-for-longer" environment necessitated by the 50% surge in Brent crude since the start of the conflict.

Gold concluded a volatile week with a sharp decline of -10.48%. Despite rebounding from two-month lows to trade near $4,670, bullion has faced significant pressure from a strengthening dollar and a hawkish Federal Reserve. While gold is traditionally viewed as a hedge against the inflation risks highlighted by Chair Jerome Powell, high interest rates have made yield-bearing assets more attractive, leading many participants to sell rather than hold the non-yielding metal during this liquidity squeeze.

WTI Oil also trended lower over the past week, recording a move of -0.78% as prices settled near $105 after previously spiking toward $119. This slight weekly decline comes as U.S. and Israeli leaders attempt to de-escalate concerns following major strikes on regional energy infrastructure. The prospect of the U.S. lifting sanctions on Iranian oil at sea, combined with potential releases from the Strategic Petroleum Reserve, has helped temper the rally. However, the market remains sensitive to ongoing supply disruptions and the continued blockade of the Strait of Hormuz.

Asian markets experienced a sharp downturn on Monday as regional risk appetite was battered by a significant escalation in the conflict between the U.S. and Iran. Following an ultimatum from President Donald Trump demanding the reopening of the Strait of Hormuz within 48 hours, Tehran responded with threats against critical regional energy and water infrastructure. This worsening geopolitical climate, combined with a weak lead from Wall Street—which has marked four consecutive weeks of losses—prompted a broad flight from risk-driven assets during the Asian session.

South Korea emerged as the region's worst performer, with the Korea 200 tumbling -5.78% as of 05:14 AM GMT. The index was pressured by the nomination of hawkish economist Shin Hyun-song as the new central bank governor, sparking fears of imminent interest rate hikes to combat inflation.

In Greater China, indices faced heavy selling pressure amid the 48-hour deadline and continued military strikes. The China SSE declined by -2.53%, while the China SZSE lost -2.12%. Performance in Hong Kong followed a similar trajectory, with the Hong Kong 50 sliding -1.75% by 05:14 AM GMT. Across the continent, market participants have increasingly scaled back expectations for monetary easing, as the threat of an "obliteration" of energy infrastructure and a total shutdown of the Strait of Hormuz continues to dominate the global economic outlook.

Looking ahead, the market focus for the coming week shifts to a heavy slate of economic data and corporate earnings, notably from Carnival Corp. The agenda begins with Flash Manufacturing and Services PMI readings for both the UK and the US, with US figures expected to hold steady at 51.6 and 51.7 respectively. On Wednesday, March 25, attention turns to the UK CPI y/y, projected at 3.0%, followed by US Unemployment Claims on Thursday, which are anticipated to land at 205K. The week concludes on Friday, March 27, with the release of UK Retail Sales m/m data, which is forecasted to show a significant rebound to 1.8%.