Economic Update

March 16, 2026

Oil prices rise as infrastructure remains under attack

Problems in the Middle East continue, and the Strait of Hormuz remains impassable. The disruption increasingly hurts more than the flow of oil and gas. Fertilizer supplies may soon feel the impact, which could carry broader implications for global agriculture. 

The conflict shows no sign of easing. Iran has launched further drone and missile strikes targeting Israel, Bahrain and the UAE, while Israel and the US have continued to strike military and infrastructure targets inside Iran. Rising energy costs are already feeding into higher transport and industrial power costs across Europe, which will eventually filter through to consumer prices. 

There has still been no public appearance from the new Iranian Supreme Leader, while the regime continues to intensify crackdowns on individuals connected to recent anti government protests. 

Risk appetite across markets looks likely to remain weak today and potentially throughout the week, in my view. 

US Federal Reserve unlikely to move on rates despite mixed economic signals

Even without the escalation in the Gulf, the Federal Reserve would not have been expected to cut interest rates at Wednesday’s FOMC meeting. Activity indicators, including labor market data and GDP, point to weakness, but inflation remains above target. That combination means the Fed has little incentive to loosen policy at this stage.

I expect the Fed’s statement to acknowledge the conflicting forces shaping the outlook. I also do not expect a unanimous vote to hold policy rates. However, given the inflation backdrop, this decision should be more straightforward than previous ones.

Today’s US data releases include the March Empire Manufacturing Survey, February industrial production, and the March NAHB housing market index. Producer price inflation for February is due on Wednesday, shortly before the Fed decision.

The US dollar continues to benefit from risk‑off sentiment and from markets pricing out near‑term US rate cuts. I see it as premature to assume that US rates could remain unchanged for longer purely because of Middle Eastern tensions. That dynamic could provide some counterbalance to recent dollar strength, although similar pricing adjustments are occurring across other major interest‑rate markets.

Bank of England unlikely to cut rates, although economic conditions may warrant it

The key UK event this week is the Bank of England’s MPC decision on Thursday at noon. Markets and economists widely expect the Bank to keep policy unchanged. That expectation reflects the short‑ to medium‑term inflation risks arising from the conflict in the Gulf.

However, recent UK activity data — particularly the January releases — highlight the economy’s underlying weakness. In my view, the Bank could justify arguing for a rate cut, given the growing downside risks to domestically generated inflation. Any delay to the start of an easing cycle risks undermining growth and discouraging supply‑side investment, both of which could soften the impact of recent energy‑price shocks.

Thursday’s labor market data and Friday’s public finances figures could weigh on sterling, particularly if the Bank holds rates and the releases point to further economic strain. I see the pound as more vulnerable against the US dollar than against the euro.

ECB to strike a cautious tone as weaker data raises growth concerns

The ECB meets this week against a backdrop of softer recent data. After a spell of improvement, January’s decline in industrial production suggests either an isolated setback or a sign of broader weaknesses beyond the increase in defense spending across Europe.

I expect the ECB to take a measured approach. Policymakers will want to avoid alarming markets given the geopolitical backdrop, while still signaling caution against excessive price pressures.

The euro has struggled against both the pound and the dollar. Risk‑off sentiment and the persistent interest‑rate differential between these economies continue to weigh on the currency. In my view, downside risks for the euro remain, regardless of the ECB’s messaging on Thursday.

Bank of Canada to hold as labor data softens; Banxico set to follow next week

Canada’s latest labor‑market figures showed a sharp drop in full‑time employment of almost 110k, with total employment down more than 80k. The unemployment rate rose to 6.7%, while employment costs increased from 3.3% to 4.2% year on year. Although the recent weakness contrasts with stronger data in previous months, the broader trend does not support a rate increase.

Before Wednesday’s Bank of Canada decision, February CPI inflation is due today and is expected to decline across all main indicators. Under different circumstances, that could have strengthened the case for a rate cut or at least increased the likelihood of one. I expect the Canadian dollar to remain under pressure against the US dollar this week.

In Mexico, Banxico also looks likely to hold rates, although the central bank meets next week. Recent data showed weaker industrial production alongside higher‑than‑expected inflation. With few domestic events scheduled, external developments may dominate trading in the peso. Continued Middle Eastern tensions could weigh further on the currency by increasing global inflationary pressures and reducing risk appetite. Although the economy could support a lower USDMXN level, in my view the external environment continues to challenge that trajectory.

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.