Forex Today: Key currency pairs steady as investors evaluate central bank policy prospects

Market Overview for Friday, March 20

On Friday, financial markets are experiencing quieter trading as investors digest recent decisions from major central banks. The US economic calendar is light, with no significant macroeconomic reports scheduled, so attention remains on ongoing tensions in the Middle East.

Bank of England Holds Rates Steady

The Bank of England (BoE) kept its benchmark interest rate at 3.75% on Thursday, in line with expectations. All nine members of the Monetary Policy Committee supported this move, despite some market forecasts anticipating calls for a rate cut. The BoE highlighted that rising global energy costs are already impacting fuel prices and reaffirmed its readiness to take action to keep inflation aligned with its 2% target. Following the announcement, GBP/USD surged over 1% before stabilizing above 1.3400 during Friday’s European session.

ECB Maintains Policy Amid Uncertainty

The European Central Bank (ECB) left its main interest rates unchanged after its March meeting, as widely expected. The ECB cited the Middle East conflict as a source of heightened uncertainty, warning of increased inflation risks and potential economic slowdown. President Christine Lagarde noted that a prolonged conflict could keep energy prices elevated and reduce household incomes. She also mentioned that inflation risks remain tilted upward in the short term and suggested the ECB could implement "temporary, targeted and tailored" measures in response to energy shocks. The EUR/USD pair climbed 1.2% on Thursday, and while it pulled back slightly on Friday, it remained above 1.1550.

US Dollar and Equities Update

After a strong performance on Wednesday driven by the Federal Reserve’s hawkish stance, the US Dollar (USD) Index reversed course and posted notable losses on Thursday. By Friday morning in Europe, the USD Index was steady above 99.00. Meanwhile, US equity futures showed mixed signals after Wall Street’s main indices ended Thursday with modest declines.

Geopolitical Developments and Commodities

According to Reuters, European Union leaders have urged a halt to military attacks on energy and water infrastructure in the Middle East, reflecting growing worries about the economic fallout from the Iran conflict. In related news, US Treasury Secretary Scott Bessent indicated to Fox Business Network that the US might soon allow some Iranian oil shipments. Oil prices continued their downward trend, with West Texas Intermediate (WTI) crude trading near $93.50 per barrel, down about 1% for the day.

Gold and Major Currency Pairs

• Gold extended its weekly decline on Thursday, reaching its lowest point since early February near $4,500. However, XAU/USD rebounded on Friday morning in Europe, trading around $4,700.
• USD/JPY regained momentum early Friday, climbing toward 158.50 after dropping over 1% the previous day.
• USD/CAD remained largely unchanged on Thursday and edged slightly lower on Friday, holding just above 1.3700. Later in the day, Statistics Canada is set to release January’s Retail Sales figures.