GBP/USD is trading near 1.3350 and has fallen for a third day in a row. The move comes as tensions in the Middle East increase. On Wednesday, the International Energy Agency agreed to release around 400 million barrels of oil. The supply will come from member countries’ strategic reserves and aims to curb energy prices.

Geopolitical Stress And Pound Vulnerability

We are seeing a familiar pattern develop, reminiscent of the events in 2025 when geopolitical stress pushed GBP/USD down to the 1.3350 level. At that time, the large strategic oil release was a significant intervention meant to control surging energy costs. Today, on March 13, 2026, similar undercurrents are in play, suggesting traders should remain cautious on the pound. The pound is currently struggling around the 1.2480 mark, significantly weaker than the levels seen during the 2025 tensions. UK inflation data for February came in stubbornly high at 3.4%, putting the Bank of England in a difficult position as economic growth remains sluggish. This environment suggests that further significant interest rate hikes to defend the currency are unlikely, leaving it vulnerable. Meanwhile, the dollar continues to benefit from a flight to safety and a more resilient US economy, where recent labor market data showed continued strength. This policy divergence between a hesitant Bank of England and a data-dependent Federal Reserve is creating a clear path for dollar strength. The market is increasingly pricing in the possibility of only one UK rate cut this year, far less than was expected just months ago. The 2025 release of 400 million barrels of oil provided only temporary relief, a lesson we must remember now as Brent crude trades back above $92 per barrel. Persisting global supply constraints and new geopolitical flashpoints mean energy prices are once again weighing heavily on the UK, an economy highly sensitive to energy import costs. This pressure directly translates into weakness for the British pound.

Options Positioning For Further Downside

For derivatives traders, this points towards positioning for further GBP/USD downside in the coming weeks. Buying put options with strike prices below the 1.2400 level could offer a defined-risk strategy to capitalize on a potential break lower. Given the elevated uncertainty, implied volatility in the pair is rising, making option strategies more attractive than outright shorting for some. Create your live VT Markets account and start trading now.

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After the CPI print came in broadly in line with expectations, the S&P 500 moved higher at first but then sold off during the same session. The early rise was described as a bullish trap, and the move created an intraday opportunity to sell. Swing trading activity was limited, with a focus on avoiding being forced out of positions by short-term price swings. A prior plan laid out on Sunday was described as working as expected.

Assessing A Potential Market Bottom

The question now is whether the market can turn around, based partly on the US dollar not rising as strongly as it did on previous days. The request asks how close the market may be to a bottom and whether weaker USD strength could support a reversal. It looks like we’re seeing a classic bullish trap in the S&P 500, especially after the latest inflation numbers. The February 2026 Consumer Price Index reading of 3.1% shows inflation is still sticky, making any market strength seem untrustworthy. These brief pops higher are creating better opportunities for sellers than for buyers. For derivative traders, this means being cautious about buying call options for a big move up right now. Instead, using these rallies to either buy put options or sell call credit spreads could be the smarter play. This strategy works well when you expect the market to either go down or stay flat. We remember seeing a similar setup back in late 2025, where quick rallies were sold off on persistent economic concerns. With the VIX, a measure of market fear, now sitting near 18, it’s clear there is underlying anxiety preventing a sustained move higher. This isn’t panic, but it’s enough to keep a lid on prices.

How Dollar Weakness Factors In

Even with the U.S. Dollar Index pulling back from its recent highs to around the 104 level, it hasn’t given stocks the green light. A weaker dollar usually helps stocks, but its failure to ignite a real rally tells us sellers are still in control. For now, the path of least resistance appears to be sideways or down. Create your live VT Markets account and start trading now.

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The United States held an auction of 30-year bonds. The auction yield rose to 4.871%. The previous auction yield was 4.75%. This means the yield increased compared with the last sale.

Long Term Yield Signal

The higher yield on the 30-year bond auction tells us the market is demanding more compensation for long-term risk. This is likely a direct reaction to persistent inflation, as we saw the February 2026 CPI report come in unexpectedly high at 3.1%. It signals that expectations for future Federal Reserve rate cuts are fading quickly. We should consider positioning for higher rates by looking at short positions in Treasury futures, particularly the 30-year Ultra Bond (/UB). As yields rise, the price of these futures contracts will fall. Furthermore, derivatives tied to the Fed’s policy rate, like SOFR futures, are pricing in fewer rate cuts this year, with odds for a cut before September now below 50%. This environment is typically negative for equities, so we should consider buying protective put options on major indices like the S&P 500. We saw a similar dynamic back in the third quarter of 2025 when a sharp rise in yields preceded a market downturn, so being hedged is prudent. The VIX index, a measure of expected volatility, has already jumped from 14 to over 18 in recent weeks, and buying VIX calls could be a way to profit from further market stress. Higher long-term US yields also typically make the US dollar more attractive to foreign investors. We should look for opportunities to go long the US dollar against currencies whose central banks are expected to cut rates sooner, such as the Euro. This can be expressed through futures contracts on the Dollar Index (/DX) or by selling call options on currency pairs like EUR/USD.

Dollar Positioning Implications

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NZD/USD fell for a third straight session on Thursday, trading near 0.5860 and down 0.90% on the day. The move followed a firmer US Dollar and higher geopolitical tension. The US Dollar Index DXY was near 99.70, close to its highest level since November. Markets reassessed US monetary policy expectations as inflation risks rose

Oil Prices And Fed Expectations

Higher Oil prices increased concern about persistent inflation and reduced expectations for near term Federal Reserve easing. Markets no longer fully price in a single 25 basis point cut this year The US Iran war reached its thirteenth day on Thursday, with attacks intensifying across the Middle East. Iran reportedly targeted commercial vessels near the Strait of Hormuz, a major Oil shipping route Mojtaba Khamenei said closure of the Strait of Hormuz could continue as a tactic against Iran’s adversaries. The International Energy Agency announced the release of 400 million barrels from emergency reserves, yet Oil prices stayed volatile The New Zealand Dollar remained under pressure amid risk off trading and higher energy costs. Attention now turns to Friday’s US data, including PCE inflation, Q4 GDP, Durable Goods Orders, and the University of Michigan Consumer Sentiment Index

Looking Back At Late 2025

Looking back at the end of 2025, we saw the US Dollar strengthen significantly due to the outbreak of the US Iran conflict and the resulting spike in oil prices. This fear of persistent inflation pushed the Federal Reserve into a very hawkish stance, causing pairs like NZD/USD to fall sharply. The market was pricing in a prolonged period of high US interest rates As of today, March 12, 2026, the situation has evolved, and that initial narrative is being tested. Recent US inflation data for February came in sticky at 3.2%, justifying the Fed’s decision to hold rates steady, but this is now widely expected. The key change is that the initial shock from the conflict has faded, with markets adapting to the geopolitical tensions Oil prices, which we saw surge well above $100 a barrel late last year, have now stabilized and are trading around $82 a barrel. This is largely because the emergency reserve releases from the IEA were effective and global shipping found alternative routes, reducing the immediate supply disruption fears. This price stability lessens the pressure on the Federal Reserve to consider further hikes based solely on energy costs Meanwhile, the Reserve Bank of New Zealand has been forced to react to the domestic inflation caused by that 2025 energy price shock. We have seen them hold their Official Cash Rate firm at a restrictive 5.50%, with recent statements suggesting they may need to stay higher for longer than even the Fed. This has started to provide a strong base of support for the Kiwi dollar Given this shift, the intense downward pressure on NZD/USD appears to be easing. We should now consider strategies that benefit from this potential bottoming out process, as the RBNZ’s hawkishness now rivals, if not exceeds, the Fed’s. Derivative traders could look at selling out of the money NZD/USD put options to collect premium, betting that the pair will not fall much further from current levels Create your live VT Markets account and start trading now.

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GBP/USD traded near 1.3350, falling for a third day as the US-Iran conflict escalated. The International Energy Agency agreed to release around 400 million barrels of oil from members’ strategic reserves to cool energy prices. Higher oil prices have added to inflation pressure, complicating expectations for a near-term Bank of England rate cut. A Reuters poll showed the BoE is expected to hold rates at 3.75% on 19 March, with 43 of 50 economists, or 86%, forecasting no change (up from 35% in the February poll).

Us Data And Risk Sentiment

US data came in stronger than expected, with the goods and services trade deficit narrowing to $54.5 billion in January from $72.9 billion in December. Initial jobless claims fell to 213K in the week ended 7 March, from a revised 214K, versus 215K expected. On the 1-hour chart, GBP/USD was around 1.3345, below the 20-period SMA at 1.3381 and the 100-period SMA at 1.3396, with RSI at 34. On the 4-hour chart, the 100-period SMA was near 1.3438 and the 20-period SMA near 1.3412, with RSI in the low 40s. Resistance levels were listed at 1.3370 and 1.3409, with support at 1.3339. A break below 1.3339 was linked to a move towards the mid-1.32s, while a move above 1.3409 would weaken the downside bias. We are seeing echoes of the situation from this time last year, when escalating Middle East tensions drove fears of an oil-driven inflation spike. Back in March 2025, those events pushed GBP/USD down towards 1.3350 as the market priced out a Bank of England (BoE) rate cut. Today, the pair is trading significantly lower near 1.2450, facing a similar but distinct set of pressures.

BoE Policy And Oil Market Backdrop

The BoE is once again in a difficult position, holding its Bank Rate at 4.25% ahead of its meeting next week. While UK inflation has fallen from its 2025 peaks, the latest CPI reading for January 2026 came in at a sticky 3.1%, still well above the bank’s 2% target. This persistent inflation complicates any discussion of rate cuts, much like the oil price shock did last year. Unlike the supply-side shock we saw in 2025, current oil prices are more influenced by global demand concerns. Brent crude is currently hovering around $82 per barrel, down from last year’s highs, but renewed OPEC+ production discipline is keeping prices firm. This provides a floor for energy prices, preventing a sharp drop in inflation that would give the BoE a clear green light to ease policy. On the other side of the currency pair, the US economy continues to show resilience, strengthening the dollar. The most recent Non-Farm Payrolls report for February 2026 showed the economy added 275,000 jobs, handily beating expectations and reinforcing the case for the Federal Reserve to remain patient. This dynamic, a hesitant BoE versus a patient Fed, is weighing heavily on the pound. Given this backdrop, we should consider that any strength in GBP/USD is an opportunity to position for further downside. Recent CFTC data shows that speculative net short positions against the pound have increased, suggesting market sentiment is decidedly bearish. Derivative traders could look to buy put options with a strike price below 1.2400 or use rallies toward the 1.2500 resistance level to initiate short futures positions. Create your live VT Markets account and start trading now.

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USD/JPY rose for a third day on Thursday and traded near 159.18. This returns the pair to levels linked to official Japanese “rate checks” on 23 January, raising talk of possible intervention. The Yen stayed weak due to a wide interest-rate gap between Japan and other major economies. Markets also focused on Japan’s fiscal stance and the country’s already high public debt.

Intervention Risk Returns

Demand for the US Dollar increased amid the US-Iran conflict. Oil flows through the Strait of Hormuz have been severely disrupted, affecting a key route for global crude exports. Japan, a large net energy importer with much supply from the Middle East, faces higher import costs. This could hurt growth and the trade balance and add pressure on the Yen. The Bank of Japan has continued a cautious approach to policy tightening. Governor Kazuo Ueda said on Thursday the BoJ will set policy while closely assessing how foreign-exchange moves affect its forecasts. Markets expect a BoJ rate rise in April, but the timing remains uncertain. At the same time, expectations for US rate cuts have dropped to less than 25 basis points by year-end, from more than 50 basis points before the Middle East conflict, supporting the Dollar via higher US Treasury yields. US data due on Friday include the PCE Price Index, preliminary Q4 annualised GDP, Durable Goods Orders, and the University of Michigan sentiment and expectations index.

Traders Weigh Policy And Volatility

Looking back at the situation in early 2025, we saw USD/JPY push past 159, triggering serious concern from Japanese officials. Now, in March 2026, the pair is again approaching that critical level, trading near 158.50, which brings the potential for intervention back into sharp focus for traders. This creates a familiar but tense environment for currency markets. We remember that following the warnings in January 2025, the Ministry of Finance did eventually step into the market in the spring of that year. Records show they spent nearly ¥7 trillion to support the yen, causing a rapid, multi-yen drop in the pair over just a few days. This history suggests that while officials may issue verbal warnings first, their tolerance has a clear and costly limit. The fundamental issue of the interest rate gap, a major driver of yen weakness in 2025, persists today. Although the Bank of Japan has since raised its policy rate to 0.25%, the U.S. Federal Reserve has only cautiously cut its own rate to 4.75%, leaving a substantial differential that encourages carry trades. This underlying pressure makes sustained yen strength difficult to achieve without official action. The energy shock from the US-Iran conflict in 2025 also left a lasting mark on the market. While the severe disruptions at the Strait of Hormuz have eased, global oil prices have established a higher floor, with WTI crude now consistently trading around $85 per barrel, up from pre-conflict levels. This continues to weigh on Japan’s trade balance and contributes to the yen’s structural weakness. Given the current proximity to the 2025 intervention zone, derivative traders should consider strategies that protect against a sudden, sharp decline in USD/JPY. Buying put options with a one- or two-month expiry provides a direct hedge against a surprise move by Japanese authorities. The cost of this insurance is a necessary consideration when the risk of a 3-5% drop in the pair is elevated. At the same time, the interest rate differential continues to favor holding U.S. dollars over yen, suggesting the path of least resistance remains upward. A cautious bullish strategy could involve using call spreads, which cap both potential profits and losses. This allows traders to benefit from a continued grind higher in USD/JPY while defining their maximum risk should intervention occur. Create your live VT Markets account and start trading now.

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Canada’s merchandise trade deficit widened in January to its largest level in five months. The rise was linked mainly to temporary disruption in the automotive sector. The disruption led to the largest decline in nominal exports since April 2025. Automotive exports and related imports both fell, as the United States is the main destination for these exports.

Trade Balance Shift Driven By Autos

The reduction in the trade surplus with the United States was partly offset by a 23.7% increase in natural gas exports. This followed an unusually cold January in the United States, which raised demand and prices. Imports also dropped outside autos, with a fall in electronics. Statistics Canada linked this to fewer smartphone imports from China during a semiconductor shortage. The wide trade deficit reported for January 2026 is now old news, and we should focus on its temporary nature. The disruption in the auto sector, which we now understand was linked to specific plant retooling for new EV models, is already resolving. This suggests the sharpest part of the export decline is behind us. Given this, we see an opportunity in call options on the Canadian dollar for the coming weeks. The currency weakened following the January report, but recent industry data for February 2026 shows North American auto production has already rebounded by over 10% from its January lows. As the market digests that the automotive weakness was a one-off event, the CAD should regain its footing against the USD.

Positioning For A Near Term Rebound

For equity traders, this points toward buying call options on Canadian auto-parts manufacturers that were oversold. The implied volatility on these names spiked in February, but as production schedules normalize, their earnings outlook for the rest of the first half of 2026 will improve. The temporary shutdown likely created an attractive entry point for bullish positions expiring in the second quarter. Conversely, the boost from natural gas exports was clearly tied to a temporary weather event. As we move into the spring shoulder season, demand will naturally fall, and recent U.S. Energy Information Administration data shows natural gas storage levels are now 4% above the five-year average. This makes put options on Canadian natural gas producers a sensible hedge against a price correction. The Bank of Canada will likely look past this noisy January data, especially as the latest inflation report for February showed core CPI holding steady at 2.5%. The persistent issue is the semiconductor shortage mentioned in the report, a problem we also saw impact supply chains in 2025. This lingering supply-side headwind may keep the Bank from turning more aggressive, supporting trades that benefit from interest rates remaining stable through the spring. Create your live VT Markets account and start trading now.

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HSBC keeps bonds as a core holding and focuses on steady income. It says inflation is largely contained across most developed markets and expects the effect of the oil price spike to be short-lived. The bank says central banks are almost finished with rate-cut cycles. It favours medium-to-long duration in euro and sterling bonds, while keeping medium duration in US dollar bonds.

Developed Market Bond Preferences

Among developed market government bonds, it prefers UK gilts and Australian government bonds. It also considers emerging market local currency sovereign bonds, citing lower correlation to risk assets. In credit, it prefers investment grade and emerging market bonds over high yield. It notes that high yield credit spreads remain tight and looks for value in emerging markets with solid fundamentals and yields from higher-quality issuers. It says a recent US Supreme Court ruling on US trade tariffs should have little effect on bond yields. It adds that the high US fiscal deficit may limit how far yields can fall, and it sees better prospects in the UK and some emerging markets. We believe that stable income is now the primary goal, as the major central bank rate-cutting cycles that dominated 2025 are largely complete. With inflation mostly under control, the focus shifts to finding the best relative value across different government bond markets. This environment suggests positioning for specific interest rate moves rather than broad market shifts.

Strategy Implications For Duration

Given this outlook, we see better prospects in UK gilts compared to US Treasuries. The latest UK inflation data for February 2026 came in at 2.1%, while Q4 2025 GDP growth was a sluggish 0.1%, giving the Bank of England reason to remain accommodative. This supports taking on long-duration positions in the UK, likely through buying Long Gilt futures. In the United States, the potential for yields to fall is limited by the high fiscal deficit, which the Congressional Budget Office recently projected to remain above 5.5% of GDP. Therefore, our strategy involves maintaining a more cautious medium duration in US Treasuries. This might involve using 10-year Treasury note futures to capture modest price movements without over-exposing to longer-term interest rate risk. On the credit side, we prefer the safety of investment-grade bonds over high-yield debt. The spread on the US Corporate High Yield Index tightened to just 310 basis points last month, a level not seen since mid-2025, offering poor compensation for default risk. A strategic response could involve buying credit default swap (CDS) protection on high-yield indices. We also find value in Australian government bonds and select emerging markets offering solid fundamentals. For instance, with inflation in Mexico now trending down towards 4%, its high policy rate offers attractive real yields and a diversification benefit. These positions can be expressed through bond futures or currency derivatives that benefit from stable or appreciating local currencies. Create your live VT Markets account and start trading now.

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The United States held a 4-week Treasury bill auction with an unchanged high rate of 3.64%. The result indicates the auction’s yield level remained the same as the previous comparable reading.

Near Term Rate Expectations

The unchanged 4-week bill auction at 3.64% indicates that near-term rate expectations are anchored and stable. We see this as a signal that the market does not expect any sudden moves from the Federal Reserve in the immediate future. This environment makes selling volatility an attractive strategy for the coming weeks. This outlook is supported by recent economic data, with last week’s jobs report showing steady payroll growth of 195,000, aligning with a non-inflationary expansion. This predictability makes strategies like selling iron condors on major indices like the SPX appealing, as they profit from a lack of large price swings. The CBOE Volatility Index (VIX) has reflected this, hovering near 14 for the past month, well below its historical average. We remember the sharp market reactions to Fed announcements throughout 2025, when rate path uncertainty was extremely high. The current stability is a stark contrast, suggesting that long volatility positions are less likely to be profitable now. This favors option-selling strategies that collect premium from the market’s expectation of calm. This steady rate environment also continues to support the U.S. dollar. With the European Central Bank signaling a potential rate cut in the next quarter, the interest rate differential favors holding dollars. We could see traders using options on currency pairs like the EUR/USD to position for further dollar strength.

Focus On The Next Dot Plot

Looking forward, attention will be on the Fed’s next dot plot for guidance on the remainder of the year. The current stability allows traders to focus on longer-dated options on SOFR futures, where expectations for late-2026 rate cuts are still priced in. A position that bets on the Fed holding steady for longer than anticipated could be a valuable hedge. Create your live VT Markets account and start trading now.

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The Canadian Dollar eased against the US Dollar on Thursday, with USD/CAD near 1.3621 after earlier dropping to about 1.3525. Demand for the US Dollar remained firm amid the US-Iran war. Oil prices stayed elevated due to supply disruption risks in the Strait of Hormuz, which can support the CAD because Canada exports crude. Iran’s Supreme Leader, Mojtaba Khamenei, said the strait’s closure should remain a tool to pressure Iran’s enemies. The US Dollar continued to gain, supported by demand for liquidity during geopolitical stress. As oil is priced in US Dollars, buyers often need more USD for energy purchases. The US Dollar Index (DXY) traded around 99.70, near its highest level since November 2025. Markets also focused on the risk that higher oil prices could raise inflation and keep interest rates higher for longer. Expectations for Federal Reserve rate cuts have been reduced, with markets no longer fully pricing even one 25-basis-point cut in 2026. The Bank of Canada is expected to keep rates on hold through 2026. US Initial Jobless Claims for the week ending March 7 fell to 213K from 214K, below the 215K forecast. Housing Starts rose to 1.487 million versus 1.35 million expected. US data due Friday includes the PCE Price Index, preliminary Q4 annualised GDP, Durable Goods Orders, and University of Michigan sentiment indices. Canada is due to release labour market data. Given the heightened demand for the US Dollar as a safe haven during the US-Iran conflict, we should position for continued strength in the USD/CAD pair. The path of least resistance appears to be higher, so acquiring call options or long futures contracts on USD/CAD seems prudent. This strategy directly plays into the ongoing flight to quality that is currently dominating market sentiment. The rally in crude oil, with West Texas Intermediate (WTI) now trading above $115 a barrel for the first time since the summer of 2022, is failing to support the loonie as it normally would. We saw a similar dynamic during the initial weeks of the Ukraine conflict in 2022, where the dollar’s safe-haven appeal initially overshadowed the commodity price surge. This historical precedent suggests the greenback will likely remain in control as long as the conflict in the Strait of Hormuz is escalating. With geopolitical uncertainty so high, implied volatility in the currency markets has jumped, making options more expensive. We should consider using strategies like bull call spreads on USD/CAD to cheapen the cost of entry and define our risk. This allows us to maintain a bullish outlook while protecting against a sudden reversal if tensions were to de-escalate unexpectedly. The divergence in central bank policy expectations provides a strong fundamental tailwind for our position. According to fed funds futures, the market has dramatically repriced rate expectations, with the probability of a Fed rate cut by the end of 2026 collapsing from over 80% at the start of the year to below 30% today. Meanwhile, the Bank of Canada is widely expected to remain on hold, increasing the interest rate advantage for the US dollar. A key risk to this view is if oil prices continue to spike uncontrollably, which could force the Bank of Canada to adopt a more hawkish stance to fight inflation. We remember how a temporary supply scare back in 2025 briefly caused the Canadian Dollar to rally before risk aversion took over again. Therefore, we must closely monitor communications from the BoC for any change in tone. All eyes should be on tomorrow’s flood of US economic data, particularly the PCE inflation report. A higher-than-expected inflation reading would solidify the view that the Fed cannot cut rates and would likely propel USD/CAD towards the 1.3700 level. Conversely, a surprisingly soft report could provide a temporary dip and a better entry point for long positions.

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