Economic Update

March 2, 2026

US and Israeli strikes on Iran drive volatility across global markets

US and Israeli forces launched coordinated airstrikes on Iranian military and political sites over the weekend, targeting senior leadership figures, defense infrastructure and nuclear‑related facilities. Reports from the US administration also indicated the destruction of several Iranian naval vessels, prompting renewed concern about the security of the Strait of Hormuz, a critical route for global energy shipments.

Iran responded with strikes on states viewed as aligned with the US, including Abu Dhabi, Dubai, Bahrain and Kuwait, alongside an unsuccessful attack on the US fleet in the Gulf. Further missile activity hit Tehran yesterday and overnight. Iranian state media reported substantial casualties, including children, although these reports have not been independently verified.

Financial markets opened sharply weaker. Oil prices rose by almost 10%, gold strengthened and demand for traditional safe havens increased. Equity markets fell and sovereign yields moved higher. Markets will continue to monitor developments, with the key risks centered on energy supply disruption and the possible impact on global inflation. If shipping into the Suez Canal faces renewed threats, or if oil supply risks increase, rate‑cut expectations in major economies could face delays. In my view, economic data releases are likely to play a secondary role while geopolitical uncertainty remains elevated.

UK drawn further into the conflict as regional risks escalate

The UK shifted its position overnight by allowing the US to use British bases for defensive operations in the Middle East. This decision came shortly before an Iranian drone attack on the UK’s Cyprus installation. The strike caused only limited damage and no reported casualties. The UK has since deployed defensive missions aimed at intercepting Iranian missiles and drones, while also preparing to support the evacuation of an estimated 70,000 British citizens and holidaymakers in the region.

These developments overshadow what would otherwise have been a quieter week for UK data. Sterling has weakened more noticeably against the USD than the EUR, with GBPEUR slipping below €1.14. Additional downside risks remain if the UK faces further direct threats to infrastructure. Although the Iranian leadership has signaled a willingness to negotiate, global risk appetite has already deteriorated. Historically, such conditions tend to weigh on sterling and other cyclical currencies. I see further downside risks as the conflict evolves.

EUR weakens as risk appetite drops, with PMIs and CPI now in focus

The EUR has come under pressure against the USD, primarily due to reduced risk appetite following events in the Middle East. Safe‑haven flows have supported gold and the Swiss franc, with markets likely to remain focused on geopolitical developments in the near term.

Within the Euro Area, investors will also watch this week’s PMI and CPI releases. CPI figures that exceed expectations could offer the EUR some short‑term support. However, geopolitical risk currently remains the dominant driver of FX sentiment. In my view, the balance of risks still leans towards further EUR softness if the conflict escalates or risk appetite deteriorates further, despite the relatively muted FX moves seen so far.

Canada underperforms while Mexico waits for February CPI

Canadian GDP for Q4 came in weaker than expected, contracting by 0.6% on an annualized quarterly basis. Although temporary factors may have influenced the result, the data reinforces the challenge facing the Bank of Canada. Inflation remains broadly anchored, but labor market resilience complicates the policy outlook. As a result, the domestic drivers of the Canadian dollar remain difficult to interpret with confidence.

In Mexico its attention is now on February \CPI release. Recent months have indicated a slight upward trend in both headline and core inflation, and another modest uptick could keep Banxico on hold at its next meeting. This might offer the MXN some support, but with broader markets leaning towards risk aversion, any moves are likely to remain limited.

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.