Sterling traded broadly flat against major peers, holding near 1.3350 versus the US Dollar during the European session on Wednesday. Markets were quiet ahead of a data-heavy Thursday. The Bank of England is expected to keep interest rates unchanged at 3.75%, with a 7-2 vote split. The decision comes as inflation pressures have picked up globally alongside higher oil prices. UK labour market figures for the three months to January are due before the BoE decision. Forecasts point to the ILO Unemployment Rate rising to 5.3% from 5.2%, while Average Earnings Excluding Bonuses is expected to slow to 4% year-on-year from 4.2%. The US Dollar was also steady ahead of the Federal Reserve decision at 18:00 GMT. The US Dollar Index was near 99.50, while CME FedWatch showed expectations for rates to stay at 3.50%–3.75%. A correction issued at 12:00 GMT stated that the ILO Unemployment Rate is expected to rise to 5.3%, not remain at 5.2%. We recall the market consolidation around 1.3350 in early 2025, a time of significant indecision for currency traders. With both the Bank of England and the Federal Reserve expected to hold rates steady, many derivative positions were sidelined. The market was essentially waiting for a clear signal on inflation and employment before committing. Today, on March 18, 2026, that period of stagnation feels distant as the fundamental picture has changed. Unlike the holding pattern we saw in 2025, markets are now actively pricing in divergent monetary paths for the two central banks. This suggests that strategies profiting from price movement could be more effective than waiting on the sidelines. The economic data contrasts sharply with the forecasts from that time. Back then, we were looking at a potential unemployment rate of 5.3%; however, the latest ONS data from February 2026 shows the UK unemployment rate holding steadier at 4.4%. This relative strength in the labour market gives the Bank of England less urgency to cut rates, creating a potential divergence from other central banks. With the Fed funds rate now at 3.75-4.00%, the dynamic has shifted from the synchronized pause we observed in 2025. The GBP/USD pair is trading near 1.2800, considerably lower than the 1.3350 level where it was consolidating. This lower valuation reflects the changed economic outlook and interest rate differentials that have developed over the past year. Given this environment, traders might consider positioning for sustained Sterling resilience against currencies where rate cuts are more certain. For instance, purchasing call options on GBP/USD with a three-month expiry could be a calculated way to speculate on this policy divergence. This is a direct response to the new economic realities, which are no longer defined by the stalemate of early 2025.

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Aluminium supply has tightened due to disruptions linked to the Gulf conflict. Bahrain shipments have stopped, Qatar’s Qatalum smelter is set to shut, and the Alba plant in Bahrain has declared force majeure while seeking alternative shipping. Disruptions are estimated at about 1.3Mt in 2025, with a projected aluminium market deficit of 1.9Mt in 2026. More than 5Mt of primary aluminium is shipped through the Strait of Hormuz each year from Bahrain, Qatar, Saudi Arabia and the United Arab Emirates. Bauxite and alumina also move through the same route to supply smelters. A prolonged closure of the Strait of Hormuz could lead to further smelter closures. LME aluminium prices reached $3,534/t, a level last seen in 2022. US and European premiums reached multi-year highs, and prices are expected to stay elevated as supply constraints continue and inventories fall. The US Midwest premium is around $2,400/t, supported by a 50% import tariff. It is expected to move above current highs. The ongoing Gulf conflict is creating a significant supply shock for aluminum. With Bahrain and Qatar, key producers, cutting output and the Alba facility declaring force majeure, we are now looking at a potential 1.9 million tonne market deficit for 2026. This disruption to the more than 5 million tonnes of metal shipped through the Strait of Hormuz annually is tightening the market considerably. This supply chaos is keeping prices elevated, as we saw when LME prices recently hit $3,534 per tonne, a level we haven’t experienced since the sanctions on Russia back in 2022. LME-registered aluminum inventories have plummeted in response, falling below 350,000 tonnes in early March, which is a 40% drop since the year began. This rapid inventory drawdown supports the view that prices will remain strong. Traders should consider that further escalation is not yet priced in, as vast amounts of bauxite and alumina still need to travel into the region to feed the smelters that remain online. War risk insurance premiums for vessels in the Strait of Hormuz have already surged by over 300% in the last month, adding a significant cost layer. Any prolonged closure of this vital seaway could trigger more production shutdowns. The US market is particularly exposed, with the Midwest premium holding near $2,400 per tonne, lifted by import tariffs and now these shipping risks. Given that the US imports the majority of its primary aluminum, this premium is likely to test highs above current levels in the coming weeks. The underlying supply fundamentals are deteriorating quickly. From a derivatives perspective, this environment suggests a bullish outlook for the coming weeks, favoring long positions. Recent market data shows that open interest in LME aluminum call options with strike prices above $3,800/t for the second quarter has nearly doubled in the last two weeks. This indicates that traders are actively positioning for further price increases driven by the intensifying supply squeeze.

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MUFG reported that the Canadian Dollar has held up since the conflict began, helped by oil-linked terms of trade. It expects USD/CAD to stay in a tight range unless the conflict continues and oil prices rise further. The Bank of Canada announces its decision at 13:45 GMT, following the FOMC meeting. MUFG expects rates to be held, with guidance focused on uncertainty and the need for more time to judge how higher energy prices may affect inflation.

Canadian Labour Market Shock

Recent Canadian labour data were weak, with jobs down 84k in February and full-time employment down 108k. MUFG noted this was the largest fall since the April 2020 drop after the start of Covid. MUFG projects a de-escalation within the next two weeks and still allows for a BoC cut by year-end. It expects the central bank to avoid firm policy direction until the scale of any energy price shock is clearer. If the conflict lasts longer and crude rises further beyond USD 100, USD/CAD may still trade in range at first. MUFG said Canada’s terms-of-trade support could fade if North American growth risks increase and equity markets fall. Back in early 2025, we noted the Canadian dollar’s resilience due to high oil prices stemming from geopolitical conflict. At the time, we expected the Bank of Canada to remain cautious and hold rates, keeping USD/CAD in a narrow band. The main risk we saw was an escalation that could harm North American growth.

Market Repricing And Options Positioning

That view held for a while, but the anticipated rate cuts by year-end 2025 did not happen. The BoC instead held its policy rate firm at 4.5% as the energy price shock kept inflation stickier than expected through the second half of the year. This decision provided a floor for the Canadian dollar, preventing a significant slide. The situation now has shifted from what we saw after that terrible jobs report in February 2025, which posted a loss of over 84,000 positions. Canada’s latest employment data for February 2026 showed a healthy gain of 41,000 jobs, and headline inflation has cooled to 2.8%. The market is now pricing in a greater than 60% chance of a BoC rate cut by July. For derivative traders, this signals an opportunity to position for a policy divergence, as the Federal Reserve is expected to hold its rates steady for longer. Buying USD/CAD call options is a direct way to position for upcoming Canadian dollar weakness driven by potential BoC rate cuts. Implied volatility will likely increase heading into the BoC’s April meeting, making entry now more attractive. Traders could look at call options with strike prices around 1.3700 to 1.3850 for the summer months. The primary risk to this outlook remains the price of oil, which has been stable in the mid-$80s per barrel. A sudden spike in crude prices could force the BoC to delay its easing cycle and would cap gains for USD/CAD. Create your live VT Markets account and start trading now.

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South Africa’s retail sales rose by 4.2% year on year in January. The result was above the forecast of 2.5%. The surprisingly strong retail sales number from January 2026 suggests the South African consumer is more resilient than we had anticipated. This positive data challenges the narrative of a slowing economy that dominated the second half of 2025. We must now reconsider positions that were betting on continued economic weakness. This report makes a near-term interest rate cut from the South African Reserve Bank (SARB) highly improbable. After battling persistent inflation that hovered above 5% for much of 2025, the SARB has been looking for a reason to maintain its restrictive policy. This strong consumer demand figure gives them exactly that justification to hold rates steady. For currency traders, this reinforces the case for a stronger Rand in the coming weeks. The high interest rate differential is likely to attract carry traders, putting downward pressure on the USD/ZAR pair. We saw the pair test levels above 18.50 late last year, but this data could provide the momentum to break below key support levels. In the equity derivatives market, we should look at call options on consumer-focused indices and stocks. The JSE Retailers Index, which showed a sluggish performance in the final quarter of 2025, is now positioned for a potential rally on revised earnings expectations. This data contrasts sharply with the broader economic growth figures from last year, which saw GDP expand by a meager 0.5%. The unexpected nature of this data will likely cause a spike in short-term implied volatility. This environment could be favorable for strategies like selling put options on the Rand, capitalizing on both the increased premium and the newly bullish directional view. We must adjust our models to account for a consumer who is clearly not behaving as forecasted.

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Eurozone harmonised consumer prices rose by 0.6% month on month in February. The result was below the 0.7% forecast. The release measures monthly price changes across the euro area using the Harmonised Index of Consumer Prices. It points to a smaller-than-expected rise in consumer prices for the month. This lower-than-expected inflation reading for February suggests that price pressures in the Eurozone are continuing to ease more quickly than anticipated. This development reduces the probability that the European Central Bank (ECB) will need to adopt a more aggressive, or hawkish, monetary policy stance. We are already seeing market pricing for future ECB meetings adjust, with swaps now indicating a higher likelihood of a rate cut before the end of the third quarter. We saw a similar dynamic in late 2025, when a series of soft inflation prints caused a rapid unwinding of hawkish bets. With the year-over-year inflation rate now sitting at 2.5%, getting closer to the ECB’s 2% target, traders should be positioned for a period of stable or falling interest rates. Strategies involving buying interest rate futures or selling out-of-the-money call options on EURIBOR could prove effective in this environment. This situation creates a notable divergence from the United States, where recent jobs data showed unemployment holding at a historically low 3.8% and wage growth remaining firm. This contrast reinforces the view that the ECB may be in a position to ease policy sooner than the Federal Reserve. Consequently, derivative plays that benefit from a weaker Euro against the US Dollar, such as buying EUR/USD put options, are becoming more compelling. For equity markets, a less aggressive ECB is a positive signal, as it lowers the discount rate for future corporate earnings. This environment is particularly beneficial for growth-oriented sectors that are sensitive to financing costs. Therefore, gaining upside exposure to European equities through call options on indices like the EURO STOXX 50 warrants serious consideration in the weeks ahead.

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Eurozone core HICP inflation was 2.4% year on year in February. The figure matched forecasts. Core HICP excludes energy, food, alcohol, and tobacco. The release indicates the pace of underlying price growth for February. The February core inflation figure of 2.4% doesn’t change the current market narrative because it landed exactly as predicted. This suggests that the disinflationary trend is continuing but at a slow and stubborn pace. We should not expect this number to cause any major jolts in the market this week. This steady data reinforces the European Central Bank’s cautious stance on cutting interest rates further. After the ECB began its easing cycle back in the summer of 2024, its officials have consistently signaled a gradual approach, and this report gives them no reason to accelerate. Therefore, expectations for a larger 50-basis-point cut at the next meeting should be priced out. For rate traders, this means the front end of the curve, which reflects near-term policy, is likely anchored. A strategy to consider is selling volatility on near-term EURIBOR futures, as implied volatility is likely to shrink now that this key data point is out of the way. The market is paying for uncertainty that did not materialize. We must remember that core inflation’s slow descent from its peak of 5.7% back in 2023 has been hampered by sticky services inflation. Data from Eurostat showed services inflation was still running close to 3.5% in the final quarter of 2025, driven by persistent wage pressures across the bloc. This latest reading confirms that bringing this final component down to the 2% target will be a prolonged effort. In the equity derivatives space, this predictability is a positive sign, as it removes the risk of a hawkish policy surprise that could unsettle markets. This supports strategies that benefit from low volatility, such as selling out-of-the-money call and put options on the Euro Stoxx 50 index. We expect the VSTOXX index, a measure of Eurozone equity volatility, to drift lower from the 16-point level it averaged in January.

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Eurozone harmonised consumer prices rose 1.9% year on year in February. This matched the forecast of 1.9%. The reading suggests annual inflation held at the expected level for the month. No additional figures were provided in the update.

Inflation Holds At Expected Level

With the February inflation number landing exactly at 1.9%, the market was not surprised, which removes a major source of uncertainty for now. This confirmation of disinflation means we should expect near-term market volatility to decrease. The VSTOXX index, a measure of Eurozone equity volatility, has already dipped below 14 in response, its lowest level this year. This 1.9% reading effectively takes any further European Central Bank rate hikes off the table and shifts the conversation entirely towards the timing of the first rate cut. We saw a similar dynamic back in 2024, when the market started aggressively pricing in cuts months before the central bank officially signaled them. The ECB’s own March staff projections have already revised 2026 growth forecasts down slightly, adding pressure for an earlier move. For our interest rate positions, this cements the view that we should be positioned for lower rates later this year. Futures markets are currently pricing a full 25 basis point cut by the September meeting, and this data gives us confidence to add to those positions. The path is now clearer than it was when inflation was still hovering around 2.4% in late 2025. This environment is supportive for European equities, as the prospect of cheaper borrowing costs improves the outlook for corporate investment and earnings. We should consider buying call options on indices like the Euro Stoxx 50, anticipating a rally as the market fully digests this pivot from fighting inflation to fostering growth. This is especially true since the latest purchasing managers’ index (PMI) data for the services sector showed a surprising uptick, suggesting the economy could respond quickly to stimulus. On the currency front, a more dovish ECB puts downward pressure on the Euro, especially relative to the U.S. dollar where inflation remains slightly more persistent. We can expect the EUR/USD exchange rate to drift lower from its current level around 1.08. Buying put options on the EUR/USD provides a good way to profit from this expected policy divergence.

Policy Focus Shifts Toward Growth

The bigger picture is now one where weak economic growth will be the primary driver of policy, a significant shift from the last two years. The final Q4 2025 GDP figures showed growth was an anemic 0.1%, and this “on-target” inflation print gives the ECB the green light to address that weakness. Therefore, our focus in the coming weeks is to position for a lower-rate, lower-volatility environment. Create your live VT Markets account and start trading now.

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Sustained oil price shocks have often pushed up global inflation and have often come before global recessions. Since the 1970s, oil shocks accounted for about 40% of global inflation variation, based on World Bank analysis, and inflation sensitivity to oil shocks has risen since the pandemic. Since the 1950s, there have been five global recessions, defined as a contraction in global real GDP per capita. Four were preceded by a sharp rise in oil prices, with the exception of the 2020 recession linked to the pandemic.

Oil Shocks And Recession Signals

No single oil price level is tied to recessions, but previous recessions followed sharp oil price increases of at least a doubling. A move in Brent towards USD 135/bbl is described as a point where markets may focus more on growth risks than inflation risks. In the past two decades, central banks have shifted from largely looking through oil shocks to using more proactive policies to keep inflation in check. This change is linked to higher downside risks for growth and may shift attention to which economies have fiscal and monetary space to respond to a slowdown. We are seeing historical patterns repeat, where oil shocks are the primary driver of global inflation. The latest February 2026 CPI print came in hotter than expected at 3.9%, with Brent crude consolidating around $118/bbl. This confirms that energy costs are once again feeding directly into headline inflation. Our analysis suggests a critical inflection point exists around the $135/bbl mark for Brent. At this level, we expect the market narrative to aggressively pivot from inflation fears to significant growth risks. Historically, four of the last five global recessions, not counting the 2020 pandemic, were preceded by oil prices at least doubling.

Portfolio Positioning And Hedging

This suggests traders should consider long-dated call options on Brent futures to capture the potential spike towards $135. Simultaneously, a strategy of buying out-of-the-money puts or establishing put spreads could position for a subsequent price collapse as demand destruction fears dominate. Volatility in the energy sector is likely to increase substantially around this key level. The risk is amplified by central banks, which, unlike in past decades, are now more likely to tighten policy into an oil shock. This was evident in the hawkish commentary from the Fed and ECB last week, even as the global manufacturing PMI for February 2026 slipped into contractionary territory. Therefore, buying puts on major equity indices like the S&P 500 or purchasing VIX futures could be prudent hedges against a policy-induced downturn. Looking back from our current standpoint, the market’s inflation anxieties throughout 2025 were a prelude to the situation we face today. However, the key difference now is the added fragility from heightened macro uncertainty and stretched valuations in certain sectors. We are more vulnerable to this oil shock than we were a year ago. Create your live VT Markets account and start trading now.

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USD/CAD has stayed rangebound between 1.36 and 1.37, as broader USD strength and risk-off sentiment have limited CAD gains. Support for the Canadian dollar has come from Canada’s status as a net energy exporter. At 14:45 CET, attention turns to the Bank of Canada meeting. The policy rate is expected to remain on hold at 2.25%, in line with consensus. This is an interim meeting without a new Monetary Policy Report. As a result, the focus is on the tone of forward guidance rather than any policy change. The CAD has remained resilient among G10 currencies against the USD. Even so, the pair has stayed confined to the 1.36–1.37 range. We see the USD/CAD exchange rate stuck in a narrow channel, primarily between 1.36 and 1.37. The Canadian dollar is getting some support because Canada is a major energy exporter, but this is being offset by general market uncertainty. This creates a tug-of-war that keeps the pair from making a big move in either direction. The Bank of Canada recently held its policy rate at 2.25%, which we and the market fully expected. Since there were no new economic projections released, the focus was entirely on the tone of the bank’s forward guidance. The cautious language used has given traders little reason to push the Canadian dollar decisively higher or lower. This sideways action is supported by current statistics, which show conflicting signals. For instance, WTI crude oil prices are holding firm near $85 per barrel, which should help the CAD, but the VIX volatility index is hovering around an elevated 20, indicating market fear that strengthens the US dollar. Adding to this, the latest US CPI inflation reading of 3.1% suggests the US Federal Reserve will remain stricter on policy for longer than the Bank of Canada. Looking at this from the perspective of 2025, we remember the Bank of Canada pausing its rate-hiking cycle well ahead of the US Federal Reserve. This early decision established the policy divergence between the two countries. That interest rate gap continues to be a primary factor influencing the pair’s trading dynamics today. Given this stalled momentum, traders should consider strategies that profit from low volatility in the coming weeks. We believe option-selling strategies, such as setting up an iron condor with strikes around 1.3550 and 1.3750, are well-suited for this environment. These positions will be profitable as long as the pair continues to trade within this established range. The key is to watch for a catalyst that could break the deadlock. A sudden hawkish shift in tone from the Bank of Canada or a sustained move in oil prices above $90 could push USD/CAD below 1.36. On the other hand, any unexpected negative global economic news would likely strengthen the US dollar and break the range to the upside.

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WTI crude traded near $93.20 a barrel in Asian hours on Wednesday, giving back gains from the previous session. Markets awaited the US Energy Information Administration report due later on Wednesday. Prices eased after Iraq agreed to resume exports through Turkey’s Ceyhan port. Iran also allowed safe passage for some vessels based on affiliation, reducing near-term disruption worries. The United States stepped up efforts to reopen the Strait of Hormuz, after allies declined President Donald Trump’s request to help protect shipping. The route remains a key channel for oil transport. The American Petroleum Institute said US crude stocks rose by 6.6 million barrels for the week ending 13 March. That followed a 1.7 million-barrel draw the prior week and differed from forecasts for a 600,000-barrel fall. Reuters reported US forces struck Iranian coastal sites near the Strait of Hormuz over anti-ship missile concerns. The BBC said Israel claimed strikes that killed senior Iranian officials, including Ali Larijani and Basij chief Gholamreza Soleimani. The Guardian reported Iran attacked oil and gas production facilities in the United Arab Emirates and Iraq. The report said the targets were upstream sites rather than refineries or storage. WTI, or West Texas Intermediate, is a US-produced crude benchmark traded via the Cushing hub. Prices mainly follow supply and demand, as well as OPEC output decisions and the US dollar. Weekly inventory data from API (Tuesday) and EIA (Wednesday) can move prices by signalling supply changes. Their results are within 1% of each other 75% of the time, and EIA data is generally treated as more reliable. We are seeing WTI oil prices pull back to around $93.20, which seems to be a short-term reaction to news about renewed Iraqi exports and a significant build in US crude inventories. This dip is likely temporary as the market digests the weekly supply data. Traders should watch the upcoming EIA report closely, as a confirmation of the large inventory increase could offer a better entry point. The underlying geopolitical risk is far more significant than these weekly data points. Last year, in 2025, we saw a major escalation with direct attacks on oil production facilities in the UAE and Iraq, which is a much greater threat than targeting tankers or storage sites. These events, combined with the killing of senior Iranian officials, have set the stage for sustained volatility and a high-risk premium on oil prices. Historically, direct attacks on infrastructure cause dramatic price reactions. We saw this in 2019 when attacks on Saudi Arabia’s Abqaiq and Khurais facilities briefly knocked out 5% of global supply, causing one of the largest single-day price surges in history. The precedent from 2025 suggests an even higher risk is now priced into the market, and any further escalation could trigger a similar, if not larger, price spike. This tension is happening within an already tight market. The International Energy Agency (IEA) recently projected that global oil demand is on track to hit a record high of over 103 million barrels per day this year. With non-OPEC+ supply growth slowing, there is very little spare capacity to absorb a major supply disruption from the Middle East. Given this backdrop, we view the current price weakness as a strategic opportunity to position for a sharp move higher in the coming weeks. The fundamental risk is skewed to the upside, driven by the unresolved conflict in one of the world’s most critical energy-producing regions. For derivative traders, this means considering the purchase of call options or setting up bull call spreads to profit from a potential price surge. The extreme uncertainty also makes long volatility strategies, like buying straddles, an attractive way to trade the potential for a major price move. The current dip seems to be a brief pause before the geopolitical reality reasserts itself on the market.

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