Banco Central do Brasil (BCB) officials described March’s 25 bp Selic cut as the start of a “calibration process”, not an easing cycle. They reiterated a focus on meeting the 3% inflation target.

BCB monetary policy director Nilton David said the bank does not rely on real appreciation to bring inflation down. This comment played down the recent move of USD/BRL below 5.00.

Calibration Process And Inflation Target

BCB official Paulo Picchetti said the size of future calibration remains open. He added that incoming data could change expectations before the COPOM meeting on 29 April.

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We remember that last year, in the spring of 2025, central bank officials described their initial rate cuts as a “calibration process” rather than a full easing cycle. Their focus was squarely on the 3% inflation target, even when USD/BRL briefly dipped below 5.00. This data-dependent approach set a cautious tone for the market.

Fast forward to today, that caution seems justified as the latest IPCA inflation reading is hovering at 3.8%, stubbornly above the central bank’s target. With the Selic rate now at 9.50%, the Banco Central do Brasil (BCB) is unlikely to signal aggressive cuts while inflation remains this persistent. This reinforces the idea that the path for interest rates will be slow and deliberate.

Implications For Brl Volatility And Carry

Officials’ comments last year downplaying a strong Real as a tool for disinflation have also proven correct. The USD/BRL exchange rate is currently trading around 5.15, showing that the sub-5.00 level was not a sustainable floor. This reinforces the view that the BCB will prioritize its inflation mandate over defending a specific currency level.

This creates an environment where traders should expect continued volatility in the Real. The central bank’s reactive, data-led stance means implied volatility on USD/BRL options will likely remain elevated, especially around upcoming inflation reports and COPOM meetings. Positioning for price swings, rather than a clear direction, could be a prudent strategy.

For those involved in the BRL carry trade, this uncertainty demands careful risk management. While the yield is attractive, the potential for a weaker Real could erase gains. Hedging long BRL exposure by purchasing USD/BRL call options offers a way to protect against sudden currency depreciation driven by either local data or global risk sentiment.

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WTI US Oil traded near $87.10 per barrel on Monday, up 3.80% on the day. The move followed renewed Middle East tensions and concerns about supply disruption.

Prices rebounded from Friday’s low of about $78.89 after weekend developments raised doubts about the Washington–Tehran peace process. Oil had fallen after a ceasefire announced earlier this month, before recovering as uncertainty increased.

Renewed Diplomatic Friction

Iran’s foreign ministry spokesperson Esmail Baghaei said on Monday that Tehran would not join a second round of talks due in Pakistan on Tuesday. He linked the decision to US actions and an alleged breach of the ceasefire.

The comments followed reports that the US intercepted and seized an Iranian-flagged cargo vessel in the Gulf of Oman on Sunday as part of a maritime blockade. Iranian officials said they would retaliate, and state media said Iran could leave the diplomatic process if the blockade stays.

Attention has focused on potential disruption to shipping via the Strait of Hormuz, a key oil transit route. Limits on flows through the strait could tighten supply and lift prices.

WTI remains below earlier levels of around $106.50 this month. It is also below the near five-year high of $113.28 reached in March.

Trading Implications And Volatility

With WTI oil recovering to $87.10, our immediate focus is on the renewed US-Iran tensions. The risk of supply disruptions through the Strait of Hormuz, a chokepoint for nearly 20% of global daily oil consumption, creates significant uncertainty. This environment suggests we are entering a period of heightened price volatility in the coming weeks.

Given the binary nature of the conflict—either escalation or a sudden return to talks—we should prepare for a sharp price move in either direction. Strategies like buying straddles or strangles on near-term contracts could be effective, as they profit from a large price swing regardless of the outcome. This protects us from having to correctly guess the political developments.

We are seeing the CBOE Crude Oil Volatility Index (OVX) climb back towards 45, a notable jump from the lows seen after the ceasefire was first announced earlier this month. We remember that during the peak of the conflict in March of last year, the index surged well above 60, showing how quickly volatility can expand. This historical precedent suggests current option premiums may still be cheap relative to the potential risk.

The potential for a price spike is amplified by an already tight global supply backdrop. With US Strategic Petroleum Reserve inventories remaining near 40-year lows after the significant drawdowns of recent years, there is less of a buffer to absorb a sudden shock. Furthermore, OPEC+ has largely maintained its production discipline, leaving limited spare capacity to quickly offset any lost barrels.

While a pure volatility play is prudent, the risk appears skewed to the upside given the physical seizure of a vessel and the aggressive rhetoric. For those with a bullish bias, we can use bull call spreads to define our risk and target a move back towards the $95-$100 range. This offers a cheaper way to position for gains than buying outright calls while managing our potential losses if tensions ease unexpectedly.

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GBP/USD recovered after opening with a gap lower near 1.3480, following fresh Middle East tensions involving a seized Iran-flagged vessel and Iran’s demands over the Strait of Hormuz. The pair was at 1.3525, up 0.13%, as the US Dollar eased.

The US Dollar Index (DXY) fell about 0.05% to 98.17 after reaching a six-day high of 98.39 in early Asian trading. Oil prices rose, with WTI up nearly 3.90% to $87.37 per barrel, adding to global inflation concerns linked to supply risk and possible disruption in the Strait of Hormuz.

Key Events And Market Drivers

US data releases were limited, with attention turning to an April 21 US Senate hearing on Kevin Warsh as the nominee for Federal Reserve Chair. Markets also monitored upcoming US releases including the ADP Employment Change 4-week average, Retail Sales, and a US Senate appearance by Warren.

In the UK, two surveys showed weaker consumer mood, with S&P Global sentiment at 42.3 from 44.1, a 33-month low, and Deloitte’s gauge at its lowest since Q3 2023. More than half of S&P respondents expect a Bank of England rate rise, with UK employment data due Tuesday.

Technical levels cited include 1.3422 (simple moving average), 1.3027 (prior downtrend break), and 1.3844 (former uptrend break).

Looking back at this time in 2025, we remember the sharp spike in oil prices due to tensions in the Strait of Hormuz. The geopolitical flare-up briefly pushed West Texas Intermediate crude over $87 a barrel, fueling global inflation fears. Those fears proved to be short-lived as the diplomatic situation eventually calmed.

Today, with West Texas Intermediate trading more steadily around $82 a barrel, that specific risk premium has faded from the market. Recent EIA reports show global inventories have built up slightly, giving the market a cushion against minor supply disruptions. This stability in energy prices has allowed central banks to focus more on domestic growth data.

Outlook For Sterling And The Dollar

The UK economic picture has shifted significantly from the gloom we saw in early 2025. UK inflation has since cooled to 2.4% according to the latest ONS figures, much closer to the Bank of England’s target. Consequently, the BoE has paused its hiking cycle and is now signaling potential rate cuts later this year.

In the US, the dollar has remained strong since Kevin Warsh took over as Federal Reserve Chair last year. With the US Dollar Index (DXY) currently holding firm above 105, well above the 98 level seen during the 2025 turmoil, the greenback continues to be favored. This is largely due to the Fed maintaining higher rates for longer than its G7 peers.

Given the divergence between a hawkish Fed and a more dovish Bank of England, we should consider strategies that benefit from a weaker Sterling. Buying puts on GBP/USD or establishing bearish put spreads offers a defined-risk way to position for a potential slide towards the 1.2700 level. Implied volatility is much lower now than during last year’s scare, making options strategies more affordable.

The technical picture confirms this cautious view, as last year’s support around 1.3400 now looks like a distant resistance level. With GBP/USD currently struggling to hold above 1.2850, any rally is likely to be sold into. We see the 50-day moving average near 1.2900 as a key level to watch in the coming weeks.

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USD/CAD fell for a sixth session on Monday, trading near 1.3663 after dropping from an intraday high around 1.3709. The move followed a softer US Dollar after it opened the week with a bullish gap.

Over the weekend, Iran again closed the Strait of Hormuz, citing ceasefire violations linked to a US naval blockade. Reports of a diplomatic effort led by Pakistan reduced risk demand for the US Dollar and supported the Canadian Dollar.

Canada Inflation Update

In Canada, March CPI rose 0.9% month on month, up from 0.5% in February but below the 1.1% forecast. Annual CPI increased to 2.4% from 1.8%, under the 2.5% forecast.

Core CPI rose 0.2% month on month, down from 0.4% in February, while the annual core rate moved up to 2.5% from 2.3%. The data points to a cautious Bank of Canada approach ahead of its meeting later this month.

Markets are watching for further US-Iran developments, with a possible second round of talks this week as a two‑week ceasefire expires on Wednesday. US President Donald Trump said it is “highly unlikely” he will extend the ceasefire, and that the Strait will not reopen until a deal is signed.

Looking back to this time in 2025, we recall how USD/CAD pulled back towards 1.3660 as specific US-Iran geopolitical risks temporarily faded. The market was also reacting to a softer-than-expected Canadian inflation report for March 2025. That dynamic created a short-term opportunity for Canadian dollar strength.

Comparing 2025 And 2026 Conditions

The inflation picture today is quite different, making a repeat of that move less likely. While the annual CPI in March 2025 was 2.4%, the latest data for March 2026 shows inflation is proving much stickier at 2.9%, keeping pressure on the Bank of Canada. This persistent inflation challenges the central bank’s ability to be as patient as it was last year.

We remember the Bank of Canada’s cautious stance in 2025, but they have since begun cutting rates, with the policy rate now at 4.25%. This contrasts with the US Federal Reserve’s rate, which remains at 5.00%, creating a significant yield advantage for the Greenback. This interest rate differential should continue to provide underlying support for USD/CAD.

Volatility last year was driven by very specific headlines about the Strait of Hormuz. Today, options markets show implied volatility is being supported more by broad concerns over a global economic slowdown rather than a single flashpoint. This suggests traders should consider strategies that protect against sustained weakness in the Canadian dollar, such as buying call options on USD/CAD.

The soft economic backdrop mentioned in 2025 has seen only modest improvement, with Canada’s unemployment rate declining slightly from 6.1% to a still-elevated 5.8%. This underlying economic softness, combined with the interest rate gap, makes it difficult to build a strong case for sustained Canadian dollar appreciation. Therefore, any dips in USD/CAD should be viewed as potential buying opportunities.

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Canada’s CPI rose 0.9% month on month in March, taking annual inflation to 2.4% year on year. The rise was mainly linked to higher petrol and transport costs.

Core inflation measures eased, including inflation excluding food and energy, and the Bank of Canada’s preferred core metrics. Inflation excluding food and energy moved below 2.0% year on year.

The share of the CPI basket running above 3.0% year on year fell in March. The 3-month annualised pace of core inflation was 1.6%.

Headline inflation above its recent trend is expected to continue into early spring as higher energy prices feed through. The Bank of Canada is expected to keep a cautious, patient approach at its next rate decision.

We remember looking at the inflation report from March 2025, when a spike in gas prices pushed the headline number to 2.4%. However, the Bank of Canada’s preferred core inflation measures were actually getting softer at that time. This reinforced the Bank’s decision to remain patient and not react to what it saw as a temporary jump.

Fast forward to today, April 20, 2026, and the situation has changed. The latest official data shows headline inflation has cooled to 2.1%, but core inflation, which the Bank watches closely, has firmed up to 2.2%. The Bank of Canada, having since cut its policy rate to 4.25% amid slowing growth, now faces a more complex problem than it did last year.

This suggests that derivatives pricing in more rate cuts from the Bank of Canada could be misjudging the Bank’s current focus. We saw them ignore headline inflation in 2025, and now they may ignore a soft economy to focus on this stubborn core inflation. Traders might consider strategies that benefit from the Bank pausing its cutting cycle for longer than the market anticipates.

For the Canadian dollar, this could mean renewed strength, especially against currencies with central banks that are still signalling rate cuts. The Bank’s patience last year gave it credibility, and a hawkish pause now could make the loonie more attractive. This environment could favour currency options that bet on a rising CAD/USD exchange rate in the coming months.

With the unemployment rate now sitting at 6.5%, up significantly from 5.8% in early 2025, the Bank is balancing a weak job market against sticky underlying prices. This creates uncertainty and points towards potential volatility around upcoming interest rate decisions. Therefore, options that profit from a sharp move in interest rates in either direction, such as straddles, could be effective tools.

Brent crude saw wide price moves linked to Iran tensions and changing status updates on the Strait of Hormuz. Prices reacted to ceasefire headlines and shifting expectations for shipping through the strait.

Over the week, markets rose as hopes grew for a resolution between Iran and the US. On Friday, Iran’s Foreign Minister said the Strait of Hormuz would be open for the remaining period of the ceasefire.

Strait Of Hormuz Headlines

That message was reversed in under a day on Saturday, with Iran stating the strait was shut. Shipping through the strait picked up on Saturday but then stopped again.

Brent crude fell -5.06% last week to $90.38/bbl, after a -9.07% drop on Friday, marking its lowest close since March 10. On Monday morning, Brent rose +5.61% to $95.45/bbl.

On Friday afternoon in London, Polymarket put the chance of Strait traffic returning to normal by end-May at 84%. That later fell to about 63%, near last Thursday’s level, but above the 37% level priced at the same time the prior week.

The market is experiencing extreme whiplash, as we saw Brent crude prices collapse over 9% on Friday only to surge nearly 6% this morning to $95.45. This price action is tied directly to conflicting headlines from Iran about the Strait of Hormuz. We must accept this headline-driven volatility as the new normal for the immediate future.

The risk is not theoretical, as about 20% of the world’s total oil consumption passes through the strait daily. This reality is reflected in the derivatives market, where the CBOE Crude Oil Volatility Index (OVX) has jumped to over 45, its highest level this year, indicating traders are bracing for wild price swings. This makes outright positions dangerous and suggests a move towards strategies that can manage volatility.

Options And Volatility Strategy

Given the binary nature of the risk—the strait is either open or closed—we believe traders should consider using options to define their risk. Buying call spreads could offer a capped-risk way to bet on further escalation, while put spreads could be used to position for a sudden resolution. The high implied volatility makes selling options tempting, but the risk of a sudden gap in prices is too great.

The Polymarket odds, which fell from 84% to 63% for a May resolution, show just how quickly sentiment can turn. We are essentially trading geopolitical announcements, meaning any position requires constant monitoring. This environment favors short-term tactical trades over long-term convictions until there is more clarity from Iran.

Adding to the tension, the broader market has a very thin buffer against a real supply shock. OPEC+ has signaled it is monitoring the situation but has not committed to releasing spare capacity. Furthermore, we note that U.S. strategic petroleum reserves are near 40-year lows, limiting the ability to soften the blow of a prolonged outage.

We saw similar, though less intense, situations in 2019 with tanker seizures that kept the market on edge for months. This historical precedent suggests that even if the immediate crisis fades, elevated tension and volatility are likely to persist. Therefore, maintaining a long volatility bias in portfolios seems prudent for the coming weeks.

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GBP was little changed against USD after recovering from an early move linked to renewed US–Iran tensions. The focus now includes UK domestic politics and questions about the government’s fiscal stance, alongside discussion about the possibility of PM Starmer resigning.

The UK has a busy data schedule this week, including jobs figures, CPI, PMI and retail sales. Bank of England commentary has offered limited guidance and leaves a wide range of possible interest-rate paths.

Technical Picture And Key Levels

On the technical side, analysts describe GBP/USD as bullish to neutral in the short term, noting a flatter RSI in mildly bullish territory and doji candles. They place support in the mid-to-lower 1.34s near the 50-day and 200-day moving averages.

GBP/USD is expected to trade within a near-term range of 1.3480 to 1.3580. The report refers to the pair as range-bound within these levels.

The pound is holding steady against the dollar right now, but we are looking at a very data-heavy week ahead. Key reports on UK jobs, inflation (CPI), and retail sales are all scheduled for release. This data will be crucial in determining the next significant move for the currency pair.

On top of the economic data, political uncertainty is a growing concern for us. We saw how sensitive the pound was to last week’s headlines from Westminster questioning the Prime Minister’s leadership and the government’s fiscal plans. The Bank of England has offered little clear guidance, which only adds to the market’s indecision.

Volatility Strategy Considerations

Technically, the pair seems stuck in a tight range between roughly 1.3480 and 1.3580, creating a sense of coiled-up energy. The 1-month implied volatility for GBP/USD has already climbed to 8.5%, up from 7.2% at the start of the month, showing the options market is pricing in a larger-than-usual move. This suggests traders should consider strategies that benefit from a significant price swing in either direction.

We all remember the sharp swings in late 2025 when mixed data releases caused the pound to break its range unexpectedly. The latest March CPI data, released just last week, showed a slight uptick to 2.4% year-over-year, which is why this week’s inflation figures are so critical. A surprise in the data could easily trigger a breakout from the current quiet period.

With the chart showing conflicting signals and a flattening RSI, going long on volatility appears to be a prudent approach for the coming weeks. Buying options, such as a straddle, would allow a trader to profit whether a data surprise sends the pound sharply up or down. The goal is to be positioned for the breakout rather than betting on the direction.

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European Central Bank officials are due to speak early in the week before a blackout period begins on Thursday. Messages indicate the ECB is willing to raise rates if needed, but prefers to wait for more time.

Markets have removed expectations for a 30 April rate rise. They now price roughly a 50% chance of a June hike.

European Central Bank Signals Patience

ING expects a rate rise in June. It places a steady level for EUR/USD near 1.17.

Eurozone data releases this week focus on surveys. Germany’s ZEW is due tomorrow, eurozone April PMIs are due on Thursday, and Germany’s Ifo is due on Friday.

March business surveys were stronger than feared. Attention is on whether conditions weakened in April.

The article states it was produced using an AI tool and reviewed by an editor.

Implications For Eurusd Positioning

We’re seeing a flurry of comments from European Central Bank officials before their blackout period begins this Thursday. Their message is consistent: they are ready to hike rates if needed but prefer to wait for more data. The market has now priced out a move for the April 30th meeting, with overnight index swaps showing just under a 50% probability of a hike in June, although we still expect them to act then.

This data-dependent stance makes this week’s business surveys especially important, including the German ZEW, eurozone PMIs, and the Ifo survey. While March surveys were surprisingly resilient, we are cautious after recent data showed German industrial production fell by 0.3% in February and headline inflation cooled to 2.7% last month. Any further signs of a slowdown will likely reinforce the ECB’s patient approach.

For derivative traders, this suggests that the upside for EUR/USD is limited, with the pair struggling to sustain moves above the 1.1850 level. Selling short-dated call options or implementing bear call spreads with strikes above 1.1950 could be a strategy to consider, as we see a steady state for the currency closer to 1.17. Implied volatility in one-month EUR/USD options has fallen to 5.8%, near its lowest level this year, indicating the market is not expecting major price swings.

This situation feels different from the clear policy direction we saw for much of last year in 2025. With the US Federal Reserve also on hold, as Fed Funds futures are pricing in virtually no chance of a rate change in the next quarter, a strong directional breakout in the currency pair seems unlikely. This policy convergence between the two central banks supports a more range-bound market for now.

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The Pound (GBP) fell over the past week, alongside the US Dollar (USD) and Euro (EUR). Despite this, GBP/USD and EUR/GBP stayed fairly steady near 1.3500 and 0.8700.

Sterling weakened as UK bond yields dropped sharply. This followed markets scaling back expectations for Bank of England (BoE) rate rises.

BoE Signals A Slower Path

BoE Governor Andrew Bailey said markets had moved too quickly on rate-rise bets. He also said it was too early to make firm judgments.

The comments point to rates likely being kept unchanged at the BoE meeting at the end of the month. UK political uncertainty, linked to upcoming local elections, was also cited as a pressure on the currency.

The pound has been one of the G10’s worst performers in recent weeks, pressured by both political talk and a shift in interest rate expectations. We are seeing a sharp drop in UK government bond yields as the market starts to price in potential rate cuts later this year, even with recent inflation figures holding firm. This situation is making the pound less attractive to hold.

This pattern is familiar to what we saw in mid-2025 when uncertainty also weakened the currency. With the latest UK inflation report showing consumer prices still elevated at 3.1%, the recent drop in the 10-year gilt yield to 3.9% signals that traders are now more concerned about a potential economic slowdown. This is capping any strength in the pound, keeping GBP/USD trading near 1.2450.

Options Ideas For A Weaker Pound

For derivative traders, this environment suggests buying GBP put options to hedge against a sharper decline. Such a move would be a direct play on the risk of negative political headlines or a surprisingly dovish turn from the Bank of England in its next meeting. This strategy provides a clear, risk-defined way to profit from a potential sell-off.

The increased uncertainty also means we can expect bigger price swings, or volatility, in the currency. Traders could consider selling out-of-the-money GBP call options, collecting the premium with the view that political headwinds will prevent any significant rally in the short term. This is a bet that the pound will remain range-bound or drift lower in the coming weeks.

Looking at the EUR/GBP cross, currently stable around 0.8650, suggests another opportunity. A long volatility trade, like a straddle, could be beneficial. This position would profit from a large price move in either direction, which could be triggered if either the Bank of England or the European Central Bank is forced to make a decisive policy shift before the other.

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Comments from Governor Ueda earlier in the year suggested a move towards tighter policy, but his remarks at the IMF meetings in Washington were more cautious. This shift led some forecasters to question whether the Bank of Japan will raise rates at its 28 April policy meeting.

A Reuters survey found that 2/3rds of Bank of Japan watchers expect a rate rise by the end of June. The survey also indicated that the chances of a move in April or June were viewed as similar.

Domestic Data And Policy Signals

Recent domestic data showed February real wages rose 1.9% year on year, the second monthly increase in a row. This is being monitored as a sign of firmer domestic demand conditions.

Japan’s national CPI inflation figures for March are due on 24 April. The release is expected to be closely watched by policymakers when considering the near-term policy path.

Governor Ueda’s cautious tone at the recent IMF meetings has clouded the outlook for an April rate hike. This has shifted expectations, with many of us now seeing the June policy meeting as an equally likely time for the Bank of Japan to move. This growing uncertainty is creating opportunities in the derivatives market.

The indecision is being priced into yen options, where we’ve seen one-month implied volatility on USD/JPY climb to 11.5% from around 9.0% just a couple of weeks ago. This tells us the market is preparing for a significant move in the yen, regardless of whether the BoJ acts on April 28 or not. Traders should anticipate this elevated volatility to persist through the upcoming policy meeting.

Volatility Strategies Into Key Catalysts

All eyes are now on the national Consumer Price Index data due this Friday, April 24. We are looking for the core inflation reading, which is forecast to hit 2.7%, to see if it confirms the strength shown in February’s 1.9% real wage growth. A higher-than-expected inflation number would put an April rate hike firmly back on the table.

We remember the sharp yen appreciation that followed the policy normalization announcement back in October of 2025. That period showed us how quickly the market can reprice the currency once the central bank finally acts. Any signals from this week’s data or the BoJ statement could trigger a similarly rapid adjustment.

Therefore, buying volatility through instruments like USD/JPY straddles or strangles for late April expirations could be a prudent strategy. This approach profits from a large price swing in either direction without needing to correctly predict the BoJ’s decision. Should the CPI data come in exceptionally strong, more directional plays, such as buying yen call options, may become attractive.

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