Economic Update

09 March 2026

Oil prices surge beyond $100 per barrel as Middle East conflict intensifies; JPY weakens

Oil prices moved beyond $100 per barrel overnight and briefly reached $119 during Asian trading, reflecting rising concerns about the escalation of conflict in the Middle East. Drone and missile strikes by Iran on Gulf states have been met with increased US and Israeli action against sites and oil storage facilities in Iran. The sharp rise in energy prices could lift inflation temporarily in major economies, something central banks and governments will monitor closely given the implications for growth, investment, and supply‑side conditions.

The Japanese yen has weakened against the USD, GBP, EUR and CHF following the news. Prolonged disruption in energy markets could weigh on the Japanese government’s efforts to support domestic growth, in my view.

UK economic focus turns to January activity figures

Away from developments in the Gulf, the UK will release January activity indicators later this week. Industrial production contracted notably in December, and the combined readings for industrial output, services and construction may present a mixed picture. Higher goods spending in January could support services, but adverse weather conditions may have delayed some construction activity.

The Bank of England’s Monetary Policy Committee meets in ten days. Markets have removed expectations of an immediate rate cut after previously pricing one with high confidence. Some are even considering the possibility of a hike, although such a move would conflict with the BOE’s established policy approach. Market pricing appears to have misread the situation. While geopolitical events have influenced the near‑term outlook, risks to growth remain significant. The BOE could still judge that underlying economic weakness warrants caution. That scenario could place further pressure on the GBP, and weaker‑than‑expected January data could reinforce that trend, in my view.

US February CPI in focus following softer payrolls report

Last week’s US employment report showed a sharp drop in February non‑farm payrolls and downward revisions to the previous two months. The unemployment rate rose, the participation rate fell, but average earnings growth increased. Under different geopolitical circumstances this combination would likely have prompted speculation about a March or April rate cut from the Federal Reserve.

This week’s focus will be on Wednesday’s February CPI release and industrial production data later in the week. Evidence of persistent inflation could delay rate cuts and may offer renewed support to the USD. While developments in the Gulf remain the dominant driver for FX markets, incoming data will still shape the momentum behind the USD’s recent recovery.

Euro Area industrial activity weakness likely to be confirmed

German factory orders fell sharply in January, reversing the gains of the previous three months. Surprisingly, industrial production also declined, driven by a significant drop in fabricated metal products. A surge in energy demand due to a cold spell prevented a deeper contraction.

Euro Area industrial production data for January could therefore fall short of the current market expectation for a 0.6 percent monthly increase. The EUR may come under pressure if further weakness emerges in data and survey releases. However, the risk of an imminent ECB rate cut remains low, and markets have increasingly viewed current energy‑related disruptions as adding complexity to the rate outlook despite the associated growth concerns.

CAD labour market and Mexican CPI data in focus

Canadian and Mexican data have become increasingly relevant given the regional comparisons with the US. The CAD has strengthened against the USD as higher energy prices benefit Canada’s oil‑exporting sectors. While this provides near‑term support for the external balance and the oil and gas industry, broader economic momentum may remain constrained, as elevated energy costs could weigh on investment and consumer spending. Labour market data released on Friday will indicate whether resilience persists or whether unemployment begins to edge higher. The CAD could soften into the weekend, although it currently holds firm against the USD and other majors.

The MXN has weakened as reduced global risk appetite pushes the currency towards MXN18 per USD. Today’s February CPI release will determine whether the Mexican central bank maintains room for further policy loosening. Market expectations point to increases in both headline and core CPI, which could limit the scope for easing, particularly given the adjustments already made to account for higher global energy prices.

Author 

Views expressed in this commentary are those of the author, and may differ from your appointed Moneycorp representative. This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.