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Market Insight 05-03-2026

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  • Market Insight 05-03-2026

Market Update: Thursday, 5 March 2026

Financial markets remain firmly risk-averse in the second half of the week as the conflict in the Middle East continues to widen. Safe-haven assets remain in high demand as the confrontation between the US, Israel, and Iran enters its sixth day.

Geopolitical Crisis and Energy Markets

The scale of the conflict has expanded significantly following new maritime and aerial engagements.

  • Military Action: Hostilities intensified after a US submarine reportedly sank an Iranian warship off the coast of Sri Lanka, an event described by US Defence Secretary Pete Hegseth as the first such attack on an enemy since the Second World War. Additionally, NATO air defence systems intercepted an Iranian missile heading toward Turkish airspace.
  • Deeper Strikes: Israel has launched a new wave of strikes against military infrastructure in Tehran and Hezbollah sites in Beirut. Top US officials have indicated that the military will begin attacking “progressively deeper” into Iran.
  • Energy Disruptions: Iranian retaliatory strikes on energy infrastructure have severely disrupted critical oil and gas flows through the Strait of Hormuz. This has driven energy prices higher and revived global inflation concerns.
  • Political Stance: The US Senate rejected a resolution intended to force President Donald Trump to seek congressional approval for further military action. Meanwhile, Tehran has denied reports of a willingness to negotiate, threatening a prolonged war.

Currency Market Overview

The US Dollar (USD) has regained its traction, with the USD Index fluctuating above 99.00 as safe-haven flows accelerate.

  • GBP/EUR: The cross is trading steadily near 1.1480 as traders adopt a cautious stance ahead of Eurozone Retail Sales data. The pair remains subdued as both economies face unique pressures from the ongoing conflict.
  • GBP/USD: Sterling has turned south, declining toward 1.3300 due to renewed US Dollar strength. The British currency faces selling pressure as the UK economy risks stagflation, with rising energy costs lifting inflation while growth and employment remain weak.
  • EUR/USD: After snapping a two-day losing streak on Wednesday, the pair failed to maintain its momentum and is trading lower near 1.1600. The Euro is under pressure as the escalation in the Middle East boosts the safe-haven appeal of the Greenback.
  • AUD/USD: The Australian Dollar has weakened to around 0.7065. This follows data showing Australia’s trade surplus narrowed unexpectedly to 2,631M in January, missing market estimates.
  • USD/CAD: The pair has softened to around 1.3630 as the commodity-linked Canadian Dollar gathers strength from the jump in crude oil prices. Analysts expect the Loonie to outperform its European peers due to this oil support.
  • USD/CHF: The pair remains stronger near 0.7800. While the US Dollar is supported by reduced expectations for Fed rate cuts, the Swiss Franc is also seeing safe-haven demand, which may restrain the pair’s upside.

Central Banks and Economic Outlook

  • Bank of England (BoE): The UK faces a prolonged period where inflation may stay above the 2% target due to its exposure as a major energy importer. Headline inflation was last recorded at 3% Year-on-Year for January.
  • European Central Bank (ECB): Policymakers including Martins Kazaks have suggested the bank should “sit tight” and keep rates steady for now. However, money markets are now pricing in a 40% probability of a rate hike by year-end following hotter-than-expected February inflation data.
  • US Federal Reserve: Improving economic conditions, including an ADP Employment Change of 63K that surpassed expectations, have forced traders to pare back bets for Federal Reserve rate cuts.

Final Summary

The global market landscape is defined by a flight to safety as the Middle East conflict enters a more dangerous and expansive phase. The US Dollar remains the primary beneficiary of this volatility, supported further by robust domestic economic data that suggests interest rates may stay higher for longer. Sterling and the Euro are particularly vulnerable to the inflationary shock of disrupted energy flows, with the UK facing a distinct risk of stagflation. While commodity-linked currencies like the Canadian Dollar find a cushion in rising oil prices, the broader trend remains dominated by geopolitical headlines and a sharp reduction in risk appetite ahead of key US employment figures.