TD Securities economists said the FOMC left policy unchanged, and Jerome Powell played down the Summary of Economic Projections. They said the Fed’s tolerance for slow inflation progress may run out by late summer if an oil shock lifts headline inflation. They said the Fed may look through the oil-driven rise if tariff pass-through starts to ease. They also said long-term inflation expectations will shape how much time the Fed has to wait for conditions to settle.

Policy Normalisation Outlook

TD Securities expects a more favourable inflation path by the third quarter, based on a month-on-month profile that would allow policy normalisation to restart. They project three 25 bp cuts, occurring quarterly from September 2026 through March 2027. They said risks are rising that the Fed delays easing this year due to geopolitical uncertainty and its effect on energy prices. They said developments in the Middle East conflict will influence the Fed’s options in the coming months. The Federal Reserve is holding interest rates steady for now, but its patience on inflation seems likely to expire by the end of the summer. We are watching for an incoming oil shock to temporarily push up headline inflation, especially with Brent crude already trading over $85 a barrel. This concern is heightened by the recent decision from OPEC+ to extend production cuts of 2.2 million barrels per day, which is tightening global supply. Our base case remains that the Fed will be able to start cutting rates by 25 basis points in September 2026, followed by two more quarterly cuts. However, the market is reflecting growing uncertainty, with Fed funds futures now pricing in less than a 50% chance of a rate cut before the fourth quarter. This highlights the rising risk that geopolitical events could force the central bank to postpone easing into late this year or even 2027.

Preparing For Higher Volatility

This environment of uncertainty suggests traders should prepare for higher volatility in the coming months. Options strategies on interest rate futures, like those tied to SOFR, could be effective for positioning for sharp moves as the Fed’s summer deadline approaches. The discrepancy between the Fed’s goal and the reality of energy prices creates a potential for significant market repricing. We remember how the stubborn inflation of 2022 and 2023 forced the Fed into an aggressive hiking cycle, and they are wary of easing policy too soon. The latest Consumer Price Index reading showing inflation at a sticky 3.2% reinforces the case for the Fed to wait for more conclusive data. This stickiness suggests that any aggressive bets on early rate cuts carry considerable risk. Create your live VT Markets account and start trading now.

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Spain auctioned 5-year government bonds at an average yield of 2.934%. This compares with 2.577% at the previous auction. The jump in Spain’s 5-year bond yield to 2.934% is a significant move that signals we should prepare for higher interest rates across the Eurozone. This suggests investors are demanding more compensation for risk, likely driven by fears of persistent inflation. We see this as a bearish signal for government bond prices.

Eurozone Rates Outlook

This auction result directly challenges the narrative that the European Central Bank could consider easing policy soon, especially with the latest core inflation data for the bloc holding at a stubborn 2.8%. Looking back from our 2025 perspective, we recall how quickly sentiment shifted during the rate hikes of 2023, and this feels similar. Therefore, we anticipate the ECB will maintain a hawkish tone in its upcoming meetings. As a direct response, we should consider shorting German Bund futures, as rising yields mean falling bond prices. The 3-month Euribor forward rate for December 2026 has already ticked up 8 basis points this week, showing the market is pricing in higher rates. Paying fixed on Euro interest rate swaps is another clear strategy to profit from this trend. For a more defined risk approach, buying put options on Bund futures is an attractive strategy. This allows us to benefit from falling bond prices while limiting our maximum potential loss to the premium paid. An increase in bond market volatility makes this an especially prudent way to express a bearish view. This environment should also provide a tailwind for the euro, as higher potential yields make the currency more attractive. We should look at long EUR/USD positions, perhaps using call options to manage risk effectively. The pair has already shown strength, trading near 1.0950 as the market digests the potential for wider rate differentials with the United States.

Currency Strategy Implications

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Spain’s 10-year Obligaciones auction yield rose to 3.476%, up from 3.167% at the previous auction. The change marks an increase of 0.309 percentage points between the two auctions.

Market Repricing In Spanish Debt

We are seeing a significant repricing in Spanish government debt, with the 10-year yield jumping over 30 basis points in a single auction. This indicates that investors are now demanding a much higher return to lend money to the Spanish government for the long term. This isn’t a minor move and signals a shift in market sentiment we need to act on. This jump in yields is happening as recent data showed Eurozone core inflation unexpectedly ticked up to 2.9% last month, reigniting fears of a more aggressive European Central Bank. Looking back at 2025, the market had been pricing in potential rate cuts for later this year, but that view is now being seriously challenged. We believe the ECB will have to maintain its hawkish stance through the summer. For us in the rates space, this suggests positioning for higher yields to come. Shorting Spanish Obligaciones futures, or BGBM contracts, is the most direct play on falling bond prices. We should also consider entering interest rate swaps where we pay the fixed rate and receive the floating rate, betting that short-term rates will move higher than currently priced. Volatility is clearly on the rise, and this move will not be isolated to Spain. The spread between Spanish bonds and German Bunds has already widened to 105 basis points, its highest level since late 2024, showing specific concern about Spanish credit. Options traders should consider buying puts on broader European bond ETFs to protect against, and profit from, further downside.

Implications For European Sovereign Markets

This environment is a sharp reversal from the relative calm we experienced throughout most of 2025, when central bank policy seemed much more predictable. That period of stability appears to be over for now. We are now factoring in a period of higher uncertainty across European sovereign debt markets. Create your live VT Markets account and start trading now.

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The Swiss National Bank (SNB) kept its policy rate unchanged at 0%, in line with expectations. A press conference by Chairman Martin Schlegel is scheduled for 09:00 GMT. The SNB now forecasts inflation of 0.5% in 2026, up from a previous forecast of 0.3%. It also projects inflation at 0.7% in Q4 2028.

Inflation Outlook And Policy Signal

The SNB said an excessive rise in the Swiss franc would jeopardise price stability. It added that the conflict in the Middle East has made the economic outlook more uncertain, and that inflation is likely to rise more strongly in the next quarters. After the decision, the Swiss franc weakened. USD/CHF was down 0.1% at about 0.7925, near Wednesday’s high. The SNB is Switzerland’s central bank and aims for price stability, defined as annual CPI inflation of less than 2%. It sets monetary conditions mainly through interest rates and exchange rates. The SNB can intervene in foreign exchange markets to limit franc strength, including using foreign exchange reserves and, in 2011–2015, a euro peg. Its governing board decides policy once a quarter, in March, June, September, and December.

Trading Implications And Option Strategy

We see the Swiss National Bank holding its policy rate at 0%, which was widely anticipated following the surprise rate cut we saw in mid-2025. However, the upward revision of the 2026 inflation forecast to 0.5% is the key takeaway for us. This aligns with the recent February CPI data, which showed a year-over-year increase of 0.8%, suggesting price pressures are building slowly. The bank’s statement warns that an excessive rise in the Franc would threaten price stability, a stance they have held since they stopped selling foreign reserves in early 2025. Yet, they also acknowledge that inflation is likely to increase in the coming quarters, creating a conflict for their policy. This growing uncertainty suggests that implied volatility on Swiss Franc options could be undervalued, presenting an opportunity for traders. In the coming weeks, we should consider strategies that profit from a significant price move rather than a specific direction. For example, purchasing at-the-money straddles on USD/CHF or EUR/CHF options expiring after the June meeting could be effective. This position will benefit whether the bank is forced to intervene against Franc strength or signals a future rate hike more strongly than expected. We must also watch external factors closely, especially the European Central Bank, which recently paused its easing cycle due to persistent inflation. A stronger Euro gives the SNB more room to tolerate a stronger Franc without it hurting exports as much. Meanwhile, rising oil prices, with Brent crude now trading near $95 a barrel, will continue to fuel import-led inflation and further complicate the SNB’s position. Create your live VT Markets account and start trading now.

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Sweden’s Riksbank set its policy interest rate at 1.75%, in line with expectations. The decision leaves the benchmark rate unchanged at 1.75%.

Short Term Volatility Outlook

The Riksbank’s decision to hold the policy rate at 1.75% came as no surprise, leading to a predictable drop in short-term volatility for the Swedish Krona. With this event now behind us, implied volatility on one-month EUR/SEK options has compressed to near 5.2%, the lowest levels seen this year. This environment suggests that selling option premium, such as through short straddles, could be a viable strategy for traders who expect this period of calm to continue. This stability, however, creates an opportunity for those looking further ahead. The low volatility makes buying longer-dated options relatively inexpensive, positioning for a potential policy shift later in the year. We believe traders should consider purchasing calls on the SEK against the Euro, as any hint of a rate cut from the European Central Bank before the Riksbank acts would likely cause the EUR/SEK pair to fall. It is critical to remember the context of last year’s monetary policy. The aggressive rate-cutting cycle we witnessed throughout 2025 was a direct response to a significant economic slowdown and inflation finally nearing the 2% target. With Sweden’s current GDP growth hovering at a fragile 0.8% and core inflation at 2.2%, the Riksbank is clearly in a holding pattern, unwilling to risk either growth or its inflation credibility. For now, the primary driver for the Krona will be relative central bank policy rather than domestic surprises. The focus should be on rate differentials, particularly against the US Dollar, where the Federal Reserve is also signaling an extended pause. This suggests that range-trading strategies on the USD/SEK currency pair, using futures or options to define risk, will be the most prudent approach in the coming weeks.

Relative Central Bank Policy Focus

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Switzerland’s Swiss National Bank (SNB) kept its policy interest rate unchanged at 0%. The decision matched market expectations. The SNB gave no rate increase or cut in this decision. The headline rate remains at 0%.

Market Expectations And Volatility Outlook

The Swiss National Bank’s decision to hold its key interest rate at 0% was widely anticipated, removing any immediate catalyst for market shocks. This predictability suggests that implied volatility on Swiss Franc (CHF) currency pairs will likely compress in the near term. We see Swiss inflation data from February 2026 holding steady at 1.4%, giving the central bank little reason to alter the course it set last year. With the central bank on the sidelines, strategies that benefit from range-bound markets are now more attractive. Selling short-dated options straddles on the USD/CHF pair could be a way to collect premium as the currency pair finds its equilibrium. The Swiss Market Index Volatility Index (VSMI) has already fallen to a six-month low of 14.2, supporting the view that market calmness is the base case for the coming weeks. This 0% interest rate solidifies the CHF’s role as a funding currency for carry trades, a trend we observed through much of 2025. Traders will likely continue borrowing in the low-yielding franc to invest in assets denominated in higher-yielding currencies, such as the US dollar where the effective federal funds rate is 3.5%. This persistent interest rate differential of over 300 basis points suggests continued, gradual downward pressure on the franc. We must remain watchful of the European Central Bank’s meeting next month, as their policy heavily influences the SNB’s actions. Any hint of an unexpected rate cut by the ECB could force the SNB to intervene to prevent excessive CHF appreciation against the euro. This external risk means that while selling near-term volatility is viable, buying cheaper, longer-dated call options on the EUR/CHF could serve as an effective hedge against a surprise policy shift.

Key Risk From External Central Bank Policy

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Several G10 central banks have delivered mixed messages this week. The Reserve Bank of Australia brought forward a cut that had seemed set for May, the Bank of Canada said it was looking through an inflation bump, the US Federal Reserve kept projections for one 2026 cut unchanged, and the Bank of Japan used cautiously hawkish language. Against that backdrop, the European Central Bank is expected to avoid firm guidance. The note links this caution to the ECB’s sensitivity to oil prices and memories of the 2022 inflation episode.

Market Pricing And ECB Caution

Market pricing has shifted, with around 55bp of hawkish repricing in one-year ECB rate expectations during March. The article says this repricing means small policy hints can move short-term rates more than usual. The piece suggests risks are now tilted towards a dovish adjustment because matching current pricing would require guidance that may not be offered. It also states that foreign exchange has become less responsive to rate spreads, as oil prices have become the main driver. As a result, the euro may face some downside, though the move may be limited. EUR/USD is presented as potentially trading back close to 1.140 by the end of the week. With the market pricing in around 60 basis points of European Central Bank rate hikes for 2026, we see risks skewed towards a more dovish outcome. Looking back at the mixed messages from global central banks in late 2025, the ECB is likely to avoid giving firm guidance. This cautiousness is understandable, especially with February’s Eurozone inflation figures still elevated at 2.8 percent.

Trading Implications And EURUSD Risk

The memory of the 2022 energy crisis continues to influence the ECB’s decisions, making them highly sensitive to oil price movements. Although the situation today is different, the price of Brent crude stabilizing around $98 per barrel keeps policymakers on edge. Therefore, we expect President Lagarde will likely use cautious, non-committal language similar to her peers. For derivative traders, this means the high expectations for rate hikes could be disappointed, creating an opportunity in short-term interest rate markets. A non-committal ECB statement could easily spark a repricing towards lower rates. This suggests positioning for a fall in yields, perhaps by buying Euribor futures contracts. This outlook also translates to some downside risk for the euro against the U.S. dollar. While we’ve seen that oil prices have become a more dominant driver for currencies than interest rate differentials, a dovish shift can still weigh on the euro. We could see the EUR/USD exchange rate, currently near 1.1550, drift back towards the 1.1400 handle in the coming weeks. Considering this potential for a gradual decline, traders might look at buying EUR/USD put options to position for or hedge against a move lower. A bearish put spread, which involves buying a put at a higher strike and selling one at a lower strike, could be a cost-effective way to play this view. This strategy would profit from a modest drop in the currency pair. Create your live VT Markets account and start trading now.

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Gold fell to a new low since 6 February, dropping towards $4,700 in early European trading. The move followed a stronger US Dollar after the Federal Reserve signalled a hawkish policy path. US data showed the headline Producer Price Index rose 0.7% in February after a 0.5% rise in the prior month. The annual PPI rate increased to 3.4%, the largest 12-month rise since February 2025.

Fed Outlook And Geopolitical Risks

The Fed raised its year-end PCE inflation outlook, citing risks from higher energy prices linked to the Iran war. It also lifted its 2026 growth forecast and projected one rate cut this year and one in 2027. In the Gulf, energy infrastructure was attacked after Israeli strikes on Iran’s South Pars gas field, described as the world’s largest. President Donald Trump warned of possible large-scale retaliation tied to energy assets, while reports said the US was weighing an expanded military campaign and the deployment of thousands of troops to West Asia. Markets also awaited policy updates from the SNB, BoE and ECB, alongside US Weekly Initial Jobless Claims and the Philly Fed Manufacturing Index. The report was corrected on 19 March at 09:02, stating the prior month’s PPI was 0.5%, not 0.3%. Technically, price broke below the $5,040–$5,035 area, which combined a 200-period 4-hour EMA and the 38.2% retracement. RSI was 27.86, with resistance at $4,919.61, then $5,037.25, and support at $4,843, $4,801.97 and $4,634.48. With gold breaking below key support levels to touch $4,700, the immediate pressure is clearly to the downside, driven by a hawkish Federal Reserve. The CME’s FedWatch Tool is now pricing in an 85% probability of rates holding steady through the June meeting, reinforcing the dollar’s strength against non-yielding assets. This suggests that traders could consider buying put options or establishing bear put spreads to capitalize on further weakness towards the $4,634 technical level.

Strategy Considerations For Volatility

We believe the primary weight on gold is the Fed’s commitment to fighting inflation, which, according to the latest 3.4% annual PPI reading, remains persistent. We saw a similar pattern back in 2022 and 2023, where gold initially struggled against aggressive Fed rate hikes before geopolitical factors eventually triggered a reversal. A sustained break below the $4,800 psychological and technical support could embolden sellers to push for a deeper correction in the near term. However, the escalating conflict in the Persian Gulf introduces significant uncertainty and makes outright short positions risky. Brent crude futures have already surged past $130 a barrel this week, the highest since the supply shocks of late 2025, signaling that markets are taking the threat of a wider conflict very seriously. This environment warrants considering cheap, out-of-the-money call options as a hedge against a sudden safe-haven rally should the situation deteriorate further. The opposing forces of monetary policy and geopolitics are causing volatility to spike, which presents its own opportunity. The Cboe Gold Volatility Index (GVZ) has jumped to over 30, a level we haven’t consistently seen since the banking turmoil in the spring of 2025. Traders who expect a large price swing but are unsure of the direction could look at long straddle or strangle strategies to profit from this heightened volatility. Looking ahead, policy decisions from the Bank of England and the European Central Bank will be critical, as any dovish pivot from them would likely strengthen the US dollar further. Upcoming US data on jobless claims will also offer a fresh look at the economy’s health. Given these cross-currents, implied volatility in gold options will likely remain elevated, making it expensive to hold long-dated positions through these key events. Create your live VT Markets account and start trading now.

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Dow Jones and S&P 500 futures were steady near 46,530 and 6,670 during European hours on Thursday. Nasdaq 100 futures slipped 0.17% to about 24,600. US stock futures edged lower after Wednesday’s drop, when the Dow fell 1.63% to its lowest since November. The S&P 500 and Nasdaq Composite declined 1.36% and 1.46%.

Fed Signals Higher For Longer

The Federal Reserve kept rates at 3.50%–3.75% at its March meeting. Jerome Powell said inflation is expected to ease, but disinflation may be slower, and higher oil prices linked to the Iran conflict may lift near-term inflation. Policymakers cited uncertainty over the economic effects of the Iran war and pointed to upside risks to inflation. Projections still show one rate cut this year and another in 2027, in line with December. February US producer prices rose more than expected, with PPI up 0.7% MoM versus 0.5% in January and forecasts of 0.3%, the biggest rise in seven months. Headline PPI was 3.4% YoY, while Core PPI rose to 3.9% from 3.5%, with weekly jobless claims due next. The Federal Reserve’s hawkish shift has reset market expectations for the coming weeks. With rate cuts now likely delayed, we should anticipate continued pressure on equities, especially the interest-rate-sensitive Nasdaq 100. Implied volatility is on the rise, with the VIX climbing over 20 in the last session, suggesting options markets are pricing in wider and more aggressive price swings ahead.

Inflation And Volatility Reprice Risk

The latest Producer Price Index figures confirm that inflation is proving stubbornly persistent, a theme that has been building since late 2025. While the 3.4% annual PPI rate is well below the peaks we saw in 2022, the sharp 0.7% monthly jump is what has the market concerned. This upward momentum in wholesale prices justifies the Fed’s decision to wait for clearer evidence of disinflation before acting. Geopolitical tension is adding a significant layer of risk, directly impacting energy markets and inflation forecasts. With Brent crude now trading above $95 a barrel for the first time in over a year, we should consider using call options on energy sector ETFs as a direct hedge. This strategy would benefit from both rising oil prices and the inflationary environment the Fed is now fighting. The derivatives market is rapidly repricing the path for interest rates, which directly impacts index valuations. Fed Funds futures now indicate less than a 40% chance of a rate cut by September, a stark reversal from the two cuts that were priced in at the start of the year. This makes protective put strategies on broad market indices like the S&P 500 an increasingly prudent way to manage downside risk. Given this backdrop, we should expect value-oriented sectors to outperform growth stocks in the near term. The Dow Jones, with its focus on industrial and financial giants, may prove more resilient than the tech-heavy Nasdaq. This scenario favors strategies like selling out-of-the-money call spreads on technology ETFs to generate income while maintaining a cautious market view. Create your live VT Markets account and start trading now.

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The US Federal Reserve kept the federal funds rate unchanged in March. The Federal Open Market Committee raised its inflation forecast and its growth forecast, and still projected one rate cut in 2026. Rabobank revised its forecast for 2026 to two rate cuts, planned for September and December. It had previously forecast three cuts.

Rabobank Revises Rate Cut Outlook

Rabobank said the change follows the war with Iran and the rise in energy prices. It reported that a further escalation in the conflict could remove one more cut from its 2026 forecast. Before the war with Iran, Rabobank expected three rate cuts in 2026 in June, September and October. It also stated that market consensus implies fewer cuts than its own forecast. Rabobank referenced the possibility of a future change in Federal Reserve leadership to Warsh. It said this could affect future policy decisions. The article notes it was produced with assistance from an artificial intelligence tool and reviewed by an editor.

Market Pricing And Trading Implications

The Federal Reserve is holding rates steady for now, officially projecting just one cut in 2026, but we see things differently. We are forecasting two rate cuts, one in September and another in December, because we believe the Fed will look through the temporary inflation caused by the conflict with Iran. Recent data shows core inflation remaining stubborn around 3.2%, which explains why many in the market are hesitant to price in more aggressive easing. The situation with Iran is the primary source of uncertainty and will drive volatility in the coming weeks. We just saw Brent crude prices spike over $95 a barrel on reports of new tensions, a level not seen since the initial flare-ups in 2025. This kind of environment means traders should prepare for sudden moves, making options strategies that benefit from rising interest rate volatility particularly relevant. There appears to be a disconnect between our view and what the market is currently pricing. As of today, interest rate futures are implying only about a 60% chance of a single rate cut by the end of the year. For traders who agree with our two-cut forecast, this suggests positions that benefit from falling rates later in the year could be undervalued. An additional factor to watch is the potential for a new Fed Chair, who may push the Committee to be more aggressive with cuts than is currently expected. Looking back at past leadership changes at the Fed, such as the transition to Powell in 2018, we saw periods of significant market repricing. This uncertainty further supports holding positions that can profit from a wider range of outcomes, as the risk of another cut being removed from our forecast remains if the war escalates. Create your live VT Markets account and start trading now.

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