To The Moon

1.0 Executive Summary

The global currency markets experienced extreme volatility over the last 24 hours, driven by shifting geopolitical headlines and a dramatic reversal in risk sentiment. After U.S. President Donald Trump issued a 48-hour ultimatum to Iran to open the Strait of Hormuz, markets initially spiraled into a "panic mode" with equities plunging and oil prices surging toward $120/bbl (Saxo, Onyx). However, a subsequent Truth Social post by President Trump on Monday morning—announcing a five-day pause in planned strikes on Iranian power infrastructure to allow for "productive talks"—triggered a sharp reversal (Argus, Bloomberg). The U.S. Dollar (USD), which had served as a primary safe-haven beneficiary, saw its rally stall as risk appetite returned tentatively, though major banks like MUFG and J.P. Morgan maintain a tactically bullish stance on the greenback as a defensive hedge against potential stagflation (MUFG, JPM). In the G10 space, the Swedish Krona (SEK) and Norwegian Krone (NOK) showed resilience on energy exposure, while the Japanese Yen (JPY) remained under pressure near the 160.00 intervention threshold (Saxo, MUFG). Asian markets, particularly the KOSPI and Nikkei 225, suffered heavy losses before rebounding on the de-escalation headlines (Bloomberg).

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(USD)

The U.S. Dollar Index (DXY) regained positive traction toward the mid-99.00s during the Asian session on Tuesday after a brief downfall to a two-week low (FXStreet).

Market sentiment remains "hostage" to the next headline out of the Middle East, with the DXY's direction dictated by the credibility of U.S.-Iran negotiations (FXStreet).

Despite the temporary relief, the fundamental backdrop is seen as tilted in favor of USD bulls due to its status as the world’s ultimate reserve currency (FXStreet).

MUFG analysts noted that the USD index is rising back toward the 100.00 level as fears over energy supply disruptions intensify (MUFG).

The initial 48-hour ultimatum by President Trump raised the risk of an "existential war," driving defensive flows into the greenback (Saxo).

The "TACO" trade (Trump Always Chickens Out) made a revival as the President backed down from immediate strikes, causing a 13% plunge in oil and a temporary USD sell-off (Bloomberg, Scotiabank).

However, MUFG warns that yield differentials are unlikely to be reliable drivers of FX in times of turmoil, favoring the USD as a hedge (MUFG).

The Fed remains a key focus, with OIS markets turning more hawkish and pricing about 7bp of hikes by December due to oil-fueled inflation risks (Saxo).

Inflation risks are seen as "structurally elevated," potentially forcing the Fed to maintain a "higher-for-longer" stance or even raise rates (Saxo).

Two-year Treasury yields jumped over a half-percentage point since the conflict began, recently rising another 6bps to 3.91% (Bloomberg).

J.P. Morgan’s "Key Currency Views" framework suggests the USD is the top defensive hedge when both bonds and equities are vulnerable (JPM Knowledge).

The Trump administration's pro-oil policies and SPR drawdowns are being scrutinized for their impact on long-term energy security and the dollar (Argus).

Energy Secretary Chris Wright downplayed the price shock, stating that prices haven't yet driven "meaningful demand destruction" (Bloomberg).

Scotiabank noted that Trump's social media posts are causing "wild" market volatility, undermining economic stability (Others).

If the diplomatic window collapses after the five-day pause, the USD is expected to resume its advance on renewed risk-off conditions (MUFG).

The DXY's near-term technical bias is described as mildly bearish while below the 200-period EMA at 99.33 (FXStreet).

Initial resistance for the index is identified at 99.20, with a break exposing 99.45 (FXStreet).

Support is found at 99.10, with a move below that level opening 98.90 (FXStreet).

Hedge funds are reportedly de-risking aggressively, contributing to volatile USD positioning (Saxo).

The dollar's petrocurrency status has been amplified by the U.S. becoming the world's largest oil producer (http://Investing.com).

J.P. Morgan economists see a 35% probability of a U.S. recession in 2026, which may eventually cap USD strength (JPM Knowledge).

For now, the need for a "portfolio hedge" remains acute as stagflationary pressures endure (JPM Knowledge).

The U.S. has eased some sanctions on Venezuela's oil industry to boost supply, ensuring the government remains aligned with U.S. interests (Argus).

Venezuela's crude production has increased by 200,000 b/d since the U.S. military operation there (Argus).

Traders are closely watching the $100 level on the DXY as a psychological pivot point (MUFG).

The Pentagon is reportedly preparing to send more Marines to the region, signaling a potential for ground operations (Saxo).

Trump's ultimatum expiry at 23:45 GMT on Monday was the previous focus before the 5-day pause (MUFG).

Oil-fueled inflation risks are eroding expectations for near-term Fed rate cuts (Saxo).

The Bloomberg Dollar Spot Index advanced 0.3% on Tuesday as de-escalation hopes faded (Bloomberg).

The USD is seen as the primary beneficiary if the Strait of Hormuz closure leads to systemic global risk (Argus, Bloomberg).

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G10 Currencies

GBP/USD recovered from an Asian-session low of 1.3223 to trade above 1.3400 following the de-escalation news (http://Investing.com, Saxo).

The pair is caught between rate support from a hawkish Bank of England (BoE) and U.K. growth risks from rising energy costs (http://Investing.com).

BoE-dated OIS trades suggest the market has swung from pricing cuts to nearly 100bp of hikes by year-end (Saxo).

EUR/USD length continues to be cut, with evidence of outright downside exposure becoming more common (JPM Knowledge).

The Eurozone STOXX 50 dropped 1.9% to its lowest since September as banks tumbled due to jumping sovereign yields (Saxo).

Hawkish ECB commentary has pushed traders to price in two rate hikes this year, possibly as soon as next week (Saxo).

JPY emerged as the worst G10 performer initially, weakening to 159.23 per USD (Saxo).

Japan’s top currency official, Finance Minister Katayama, indicated the government is ready to "fully respond" to excessive yen moves (MUFG).

Katayama has spoken on FX five times since March 13, implying a high threat of intervention as USD/JPY nears 160 (MUFG).

Japan is reportedly sounding out the market on potential intervention in crude oil futures to ease pressure on the currency (Bloomberg).

SEK and NOK outperformed other G10 peers, with SEK strengthening 0.59% against the USD on Friday (Saxo).

NOK's appreciation of 0.82% was supported by its energy-linked status as European gas prices remain volatile (Saxo, MUFG).

CHF managed modest gains to end at 0.7880, benefiting from safe-haven flows during the peak of the ultimatum panic (Saxo).

The Swiss National Bank (SNB) has expressed increased willingness to intervene against rapid CHF appreciation (Saxo).

AUD/USD faced sharp declines, falling 0.90% to 0.7023 amidst the broader risk-off sentiment (Saxo).

The pair has dropped over 200 pips in less than a week, breaking below the 0.7000 level for the first time since February (FXStreet).

NZD/USD also fell 0.72% to 0.5832 as risk sentiment soured early in the week (Saxo).

The RBA is seen as leading the way in policy tightening among peers in response to the energy shock (MUFG).

Canada's retail sales rose 0.9% in February, following a 1.1% increase in January, providing some support to CAD (Saxo).

CAD remains one of the top four performing G10 currencies since the conflict began due to terms of trade benefits (MUFG).

G10 central banks are shifting from "pricing cuts to defending against inflation" (Saxo).

The Swedish Krona remains the worst performing G10 currency since the start of the conflict, down nearly 3.5% (MUFG).

The Euro area’s STOXX 600 fell 1.7% to 574, with tech names like ASML and SAP lagging (Saxo).

UK industrial order book balances improved to -27 in March, surpassing expectations despite the conflict (Saxo).

JPM's "TEAM" model indicates that local equity returns are increasingly driving currency cross-sections (JPM Knowledge).

German Bund yields rose above 3.00% as markets reconsidered the ECB's path (Saxo).

The BoE decision was a hawkish 9-0 hold, removing language that previously suggested cuts (Saxo).

The yen fundamentals have deteriorated due to the terms of trade impact from soaring oil prices (MUFG).

Goldman Sachs has raised its Brent forecast to $110/bl for March-April, weighing on energy-importing G10 currencies (Argus).

European gas prices tumbled 17% in eight minutes following Trump's pause announcement, briefly relieving the EUR (Argus).

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Asian Currencies

CNY remains broadly stable as policymakers defend the large trade surplus against Middle East-driven cost pressures (FXStreet).

The PBoC is expected to use its comprehensive toolkit, including the 7-day reverse repo and RRR adjustments, to maintain USD/CNY stability (FXStreet).

Nomura reports that PBoC liquidity remains "flush" following a RMB 2.05 trillion net injection in January-February (Nomura).

PBoC Governor Pan Gongsheng defended the trade surplus as a net positive for global financial stability (FXStreet).

Onshore Chinese funds have started to add back 5-10y government bond holdings as 10y CGB yields approach 1.85% (Nomura).

KOSPI plunged 4.73% on Monday, the worst regional performance, triggering a "sidecar" circuit breaker (Saxo).

The South Korean won is under pressure as LG Chem announced the shutdown of its No. 2 naphtha cracker in Yeosu due to feedstock shortages (Argus).

Nikkei 225 fell 3.89%, pressured by threats to the Strait of Hormuz, with significant declines in banking and electronics (Saxo).

Asian markets are "singularly focused" on the reopening of the Strait of Hormuz, as 10 million barrels a day remain shut out (Bloomberg).

Sinopec has cut operating rates by 5% in March to conserve oil and is prioritizing domestic fuel supplies (Bloomberg).

The Chinese government is prepared to use fiscal policies to stabilize supplies if global energy prices continue to surge (Bloomberg).

China has built up an estimated 1.4 billion barrels in state oil stockpiles that can be tapped if disruptions persist (Bloomberg).

Southeast Asian nations are increasingly concerned about the impact of soaring fuel costs on economic growth (Argus).

Vietnam's government has requested airlines to reduce flights from April onwards due to fuel supply uncertainty (RIM).

The Philippine government is holding discussions with China and Thailand to secure fuel supplies (RIM).

Australia's energy minister reported that six fuel shipments have been cancelled or deferred since the conflict began (Argus).

AUD is particularly sensitive to regional growth concerns, given Australia's reliance on Asian fuel imports (Argus).

Nomura’s China rates trading model (CHaRT) signal dropped to 0.5 (neutral) from 0.7 (Nomura).

Chinese NCD yields hit historical lows, with 1y AAA NCDs moving to 1.5175% (Nomura).

India's LPG consumption rose 9.7% YoY in February but fell 7% from January as supply tightened (RIM).

Two VLGCs (Pine Gas and Jag Vasant) bound for India successfully transited the Strait of Hormuz on Monday (Argus).

Iran is reportedly charging vessel operators $2 million to transit the Strait, though Iranian embassies have refuted this (Argus).

Macquarie analysts believe Asian olefin margins may have bottomed as sequential cracker run cuts occur across the region (Macquarie).

China's PE/PP inventories are expected to reach mid-to-low levels due to reduced domestic supply (Macquarie).

Sinopec is avoiding Iranian oil purchases due to the "narrow window" of the U.S. waiver and limited availability (Bloomberg).

The Japanese government is considering an additional release of national oil reserves after an initial 80 million barrel release (Argus).

Asia imported 1.7 MBD of naphtha in 2025, with 50-60% originating from the Middle East, highlighting the scale of the shock (Macquarie).

The PBoC has net drained liquidity in March via OMOs, seen as withdrawing excess rather than tightening (Nomura).

Indian refiners are snapping up floating Russian crude made available by temporary U.S. waivers (Argus).

Asian buyers are wary of Iranian crude due to requirements for payment in yuan and high banking compliance risks (Argus).