German government bond prices fell for a second consecutive day on March 13th, driven by market concerns that conflict in Iran could further push up inflation, elevating government borrowing costs to their highest level since October 2023. The yield on Germany's 10-year benchmark bond climbed by 3 basis points at one point, reaching 2.96%. Traders increased their bets on interest rate hikes from the European Central Bank, with the implied probability of a 25-basis-point increase in April now at 35%. The market has almost fully priced in a rate hike for June, with expectations for up to two increases by the end of 2026. European Central Bank Governing Council member Peter Kazimir stated this week that war-induced inflation increases could force the ECB to raise borrowing costs earlier than anticipated. President Christine Lagarde concurred, stating that necessary measures would be taken to ensure inflation is controlled and to prevent a repeat of the inflation surge seen earlier in the decade.

Meanwhile, Goldman Sachs economists have revised their forecast for the timing of the Federal Reserve's first interest rate cut this year, citing rising oil prices and heightened geopolitical tensions involving Iran as factors increasing inflation risks. The firm now expects the Federal Open Market Committee to begin its policy easing cycle in September, rather than in June as previously projected. Despite this delay, Goldman Sachs maintains its baseline forecast of two rate cuts for the year, with the second potentially occurring in December. The economists noted, "If the labor market weakens earlier or more significantly than we expect, we do not believe that concerns about rising oil prices boosting inflation and inflation expectations would prevent an earlier cut." This shift reflects a reassessment of the inflation outlook following the recent spike in energy prices. The economists further emphasized that, given their inflation forecast has been revised upward due to oil supply shocks related to Middle East tensions, the plan to start cutting rates in June now "seems premature."

Key data to be watched today includes the UK January GDP monthly rate, UK January Industrial Production monthly rate, US January Personal Spending monthly rate, US January PCE Price Index annual rate, the revised US Q4 Real GDP annualized quarterly rate, Canada's February employment change, Canada's January Manufacturing Sales monthly rate, the preliminary US January Durable Goods Orders monthly rate, the preliminary US March University of Michigan Consumer Sentiment Index, and US January JOLTs Job Openings.

**USD Index** The US Dollar Index moved higher yesterday, reaching a fresh four-month peak, and is currently trading around 99.60. The index continues to be supported by diminishing expectations for Federal Reserve rate cuts. Additionally, persistent geopolitical tensions and trade uncertainties have fueled risk-averse sentiment, providing further support for the US dollar. Positive economic data released during the session also contributed to the currency's strength. Resistance is seen near the 100.00 level today, with support around 99.00.

**EUR/USD** The Euro declined against the US Dollar yesterday, recording a slight loss on the daily chart, and is currently trading near 1.1520. The primary pressure on the Euro came from the US Dollar Index, which climbed to a four-month high bolstered by reduced Fed rate cut expectations and positive US economic data. However, renewed expectations for a rate hike from the European Central Bank limited the pair's downside. Resistance is anticipated near 1.1600 today, while support lies around 1.1450.

**GBP/USD** The British Pound moved lower yesterday, touching a three-day low, and is currently trading around 1.3360. The sustained climb of the US Dollar Index, fueled by strong economic data and fading Fed rate cut expectations, was the main factor weighing on the Pound. Nevertheless, expectations that the Bank of England will hold rates steady in March limited the currency pair's losses. Resistance is seen near 1.3450 today, with support around 1.3250.