Central Banks Keep Rates Unchanged
The ECB also left rates unchanged and said the war in the Middle East has made the outlook more uncertain, with risks to inflation and growth. EUR/USD rose 1.2% on Thursday and remained above 1.1550 early Friday after easing back. After Wednesday’s Fed-led rally, the US Dollar Index fell on Thursday and steadied above 99.00 on Friday morning. US stock index futures were mixed after Wall Street closed marginally lower. EU leaders called for a moratorium on strikes on energy and water sites, according to Reuters. US Treasury Secretary Scott Bessent said the US may “unsanction Iranian oil on water in coming days”; WTI traded near 93.50, down about 1%, after large Thursday losses. Gold hit its lowest since early February near $4,500, then rebounded to around $4,700. USD/JPY rose towards 158.50, while USD/CAD held slightly above 1.3700 ahead of Canada’s January Retail Sales data.Market Focus Shifts Toward Rate Cuts
We remember this time last year, in March 2025, when the Bank of England and European Central Bank were holding firm against inflation fears driven by conflict. Now, with UK inflation down to 2.1% and the latest Eurozone figures at 2.3%, the entire market tone has shifted. The focus for the coming weeks is no longer on hikes, but on the timing and pace of rate cuts. The unanimous BoE vote to hold rates in 2025, which surprised markets and sent the pound soaring, feels like a distant memory. Given the cooling inflation data, we should now be looking at options strategies that position for a dovish pivot from the central bank. Volatility in GBP pairs will likely spike around the next policy meeting, offering opportunities for those prepared for a definitive signal on rate cuts. A similar reversal has occurred with the US Dollar, which sold off this time last year despite a hawkish Federal Reserve. With US CPI now at 2.5%, the rate differential that pushed USD/JPY toward 158.50 in 2025 has compressed significantly, bringing the pair back toward the 145.00 level. We should anticipate continued dollar weakness against major currencies as Fed rate cut expectations become more concrete. The geopolitical risk premium in oil has also vanished. Last year’s talk of unsanctioning Iranian oil amid prices near $93.50 has given way to a more stable market, with WTI now trading calmly around $78 per barrel. In contrast, gold’s rebound to $4,700 in 2025 was a precursor to it holding these elevated levels, as the global shift toward monetary easing provides a strong underlying support. Create your live VT Markets account and start trading now.
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