Markets Today: Risk-Off sentiment supports the Dollar as US consumer sentiment data lies ahead

• The US Dollar remains strong near multi-month highs, driven by safe-haven demand
• Oil prices cooled slightly this week after a temporary extension of an ultimatum regarding strikes on Iranian energy facilities, though WTI and Brent crude remain historically elevated.
• Market participants will watch closely monitoring the final University of Michigan consumer sentiment report

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Asian markets showed signs of stabilization on Friday as a brief reprieve in Middle East tensions allowed shares to recover from their initial lows.

While the global economy remains under pressure from a persistent energy crunch, investor sentiment was bolstered by US President Donald Trump's decision to extend an ultimatum regarding strikes on Iranian infrastructure. By pushing the deadline back an additional 10 days, following previous extensions, the administration provided a temporary cooling effect on oil prices.

Despite this slight recovery, the regional outlook remained largely negative. The MSCI Asia-Pacific index (excluding Japan) sat 0.7% lower on the day, contributing to a 2.3% loss for the week, its fourth consecutive weekly decline.

Japan’s Nikkei managed to weather the volatility better than its peers, ending the week with a marginal 0.3% gain despite a flat performance on Friday.

In contrast, Chinese markets outperformed the broader region. Both the CSI300 blue-chip index and Hong Kong’s Hang Seng index climbed 0.7%, driven by reports of potential policy shifts in Beijing.

According to sources, the Chinese government is weighing a plan to ease shareholding restrictions for major investors. This move is intended to provide commercial banks with more flexible capital-raising options as they navigate a broader domestic economic slowdown.

British retail performance experienced a moderate pullback in February 2026, with sales volumes dipping 0.4% month-on-month. While this represented the first decline in three months, the figure was notably more resilient than the 0.7% drop analysts had anticipated.

This cooling period followed a robust, upwardly revised 2% surge in January, suggesting a natural stabilization after a period of high consumer activity.

Industry experts attributed the slump largely to unseasonably wet weather, which stifled footfall at supermarkets and household goods retailers.

Additionally, online and non-store retailers saw a slight decrease in volume, as many consumers had reportedly front-loaded their spending in January to capitalize on aggressive seasonal discounts. This shift in timing, combined with the dampening effect of heavy rainfall, created a temporary lull in the retail sector’s momentum.

Despite the monthly contraction, the broader data suggests a degree of underlying strength, though the pace of growth is slowing.

On an annual basis, retail volumes grew by 2.5%, a significant step down from the 4.8% increase seen in January. When looking at the three-month period ending in February, sales remained up by 0.7%.

However, retailers remain cautious as they look toward the horizon, facing the dual headwinds of escalating energy costs and continued geopolitical instability.

European equity markets retreated slightly on Friday, with the STOXX 50 and STOXX 600 both dipping approximately 0.2%. The early optimism sparked by U.S. President Donald Trump’s decision to extend the pause on strikes against Iranian energy facilities began to evaporate as the reality of high energy costs set in.

While the deadline for negotiations has been pushed back 10 days to April 6, the underlying pressure of rising oil prices continues to stoke global inflation fears, weighing heavily on investor sentiment.

The tangible impact of the conflict was evidenced by fresh economic data from Spain, where preliminary March estimates showed inflation surging to its highest level since 2024. Monthly prices in Spain jumped by 1%, the sharpest spike since 2022 driven primarily by energy disruptions linked to the war with Iran.

This inflationary pressure led to a mixed performance among major European players; industrial and financial heavyweights like Siemens (-1.4%), ASML Holding (-1%), and HSBC Holdings (-0.8%) saw declines, while Shell also slipped 0.3%.

Despite the lackluster end to the week, the broader European markets managed to secure a positive weekly performance. Defensive and tech-heavy stocks provided some insulation, with AstraZeneca jumping 3.2% and SAP rising 1.4%.

These gains helped the STOXX 50 finish the week up 1.1%, while the STOXX 600 recorded a total weekly increase of 1.3%, showing that regional indices remain resilient even as geopolitical uncertainty lingers.

Despite the intense volatility seen since the onset of the conflict on February 28, oil prices cooled slightly this week as markets reacted to the latest diplomatic extensions. WTI futures, which have surged 40% since the US and Israel launched strikes on Iran, recorded a 4.6% weekly decline. Similarly, Brent crude, up more than 48% since the start of the war, retreated by 4% over the same period. While these prices remain historically elevated, the temporary reprieve in hostilities provided a brief window for energy markets to stabilize.

The precious metals sector saw a different dynamic on Friday, as Gold climbed 2% fueled by a softening US dollar and opportunistic bargain hunting. Despite this daily gain, the metal remains on track for its fourth consecutive weekly loss, largely due to a hawkish shift in monetary policy expectations.

According to the CME Group's FedWatch Tool, traders have completely priced out any US interest rate cuts for 2026 and now see a 35% probability of a rate hike by year-end. This is a stark reversal from the pre-conflict sentiment, which had anticipated two rate cuts this year.

Other industrial and precious metals also posted significant gains during Friday’s session. Spot silver jumped 3.1% to reach $70.10 per ounce, while the PGM (platinum group metals) sector showed even stronger momentum. Spot platinum surged 3.5% to $1,891.02, and palladium rose 3.3% to finish at $1,398.30.

This broad-based rally in metals suggests that while energy prices took a breather, investors are still hedging against long-term inflationary pressures and geopolitical instability.

The US dollar maintained its position near multi-month highs on Friday as renewed safe-haven demand drove investors toward the currency. This persistent strength is being fueled by a "higher-for-longer" outlook for energy prices, which has created an inflationary pulse strong enough to shift market expectations.

Market participants are now increasingly pricing in a potential US interest rate hike by the end of the year, providing a consistent bid for the greenback amidst global uncertainty.

While the dollar index softened marginally to 99.83 on Friday, it remains on a trajectory for a 2.2% monthly gain, its most significant monthly advance since July of last year.

This broad strength has left other major currencies struggling to regain ground. The Japanese yen (JPY), for instance, continues to hover on the edge of the critical 160 per dollar threshold, last trading at 159.58.

Other European currencies showed little signs of a meaningful recovery. The euro (EUR) managed a slight 0.1% uptick to $1.1540 as it nursed recent losses, while the British pound (GBP) remained largely stagnant at $1.3339.

As the dollar continues to dominate the foreign exchange landscape, the contrast between US monetary expectations and the economic pressures facing Europe and Asia remains a central theme for currency traders.

Currency Power Balance

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The European session will be quiet today with Spanish inflation data already released. We will get the ECB CPI expectations which could shake up volatility but may not have a lasting impact on the Euro.

US economic data is expected to remain secondary to the shifting headlines from the Middle East. However, market participants are closely monitoring the final University of Michigan consumer sentiment report at 4:00 PM CET, specifically the inflation expectations component. Preliminary readings indicated a notable uptick, with one-year expectations rising to 3.6% and the five-to-ten-year outlook climbing to 3.5%.

A further increase in these figures could bolster the US dollar, as it would likely push the Federal Reserve toward a more aggressive "tightening camp" to ensure medium-term expectations remain anchored.

The market has already begun adjusting to this inflationary pressure, with five-year and ten-year zero-coupon inflation swaps rising by 20bp and 5bp, respectively, this month. Currently, traders have priced in approximately 15bp of Federal Reserve tightening for the year. If consumer sentiment data reveals a significant jump in these expectations, market participants may more actively bet on a rate hike, a shift that would likely strengthen the dollar while simultaneously weighing on risk-sensitive assets.

In the currency markets, the US Dollar Index (DXY) remains well-supported, hovering near the upper boundary of its 99.00–100.00 trading range.

There is potential for a further push toward the 100.25/50 area, a move that would keep risk currencies under significant pressure.

As long as inflation expectations continue to drift upward, the dollar is poised to remain the primary beneficiary of this hawkish shift in monetary sentiment.

US Dollar Index (DXY) Daily Chart, March 27, 2026

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