The US Dollar Index fell back below 100.00 to 99.60 on Friday, after a mid-week jump when the Federal Reserve kept rates at 3.50%–3.75%. The Iran war is nearing the end of its third week, the Strait of Hormuz remains effectively closed, and reports say the Pentagon is sending thousands more Marines. EUR/USD traded near 1.1550 after touching fresh 2026 lows, while markets price an 85% chance of an ECB rate rise this year. GBP/USD hovered around 1.3330 after the Bank of England held rates but flagged possible tightening if energy-led inflation continues.

Fx Policy And Major Pairs

USD/JPY traded near 159.30 after the Bank of Japan signalled a return to policy normalisation. AUD/USD was near 0.7010 after a second straight Reserve Bank of Australia rate rise. WTI traded near $98 a barrel, close to its weekly high. Gold fell to $4,583 amid higher Treasury yields and forced selling. Scheduled speakers include multiple ECB, Fed, BoE and RBNZ officials from Monday to Saturday. Key releases include Eurozone confidence, PMIs and HICP, UK inflation and retail sales, US ADP jobs, jobless claims and Michigan sentiment, plus Japan CPI and BoJ minutes. The ongoing conflict in Iran makes WTI oil derivatives the center of attention. With the Strait of Hormuz closed and WTI near $98 a barrel, we are in a more severe supply shock than the Red Sea disruptions we navigated back in 2024 and 2025. All eyes will be on the EIA inventory report this Wednesday, with expectations of another draw similar to last week’s, which could push prices above $100 if tensions do not ease.

Macro Risks And Volatility

We should be prepared for continued US dollar weakness, even with the Fed on hold. The Dollar Index’s failure to hold the 100.00 level shows the market is more focused on the European Central Bank and Bank of England catching up. With a heavy lineup of speakers from both banks next week, any further hawkish talk could push EUR/USD toward 1.1600 and GBP/USD above 1.3400, making long call options on these pairs an interesting play. Key inflation data later in the week will drive major currency pairs. We will be watching the UK’s CPI on Wednesday and the Eurozone’s flash HICP reading on Friday, where a figure above the expected 2.6% could cement an ECB rate hike. Similarly, the Bank of Japan’s recent signals mean any yen strength should be respected, and we could see USD/JPY test support below 158.00. Gold’s dramatic plunge to $4,583 signals a major shift in its behavior. Unlike past conflicts, rising Treasury yields, which are now pushing past the highs we saw in 2023, are overwhelming any safe-haven demand. We must treat gold not as a war hedge, but as an asset highly sensitive to interest rate expectations, meaning any hawkish surprises from Fed speakers next week could trigger another selloff. Given the uncertainty, implied volatility across asset classes will remain high, making option premiums expensive. This environment favors strategies that benefit from large price swings, such as buying straddles on oil futures ahead of geopolitical news. It also means we should watch risk-off sentiment, which continues to weigh on currencies like the Australian dollar despite the RBA’s recent rate hikes. Create your live VT Markets account and start trading now.

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