The Pound Sterling stayed firm in the North American session on Wednesday, with GBP/USD trading near 1.3400 and little changed. This was despite the Middle East conflict reaching its twelfth day of hostilities. US inflation supported the US dollar, but the exchange rate held close to 1.34. The market also faced an oil price shock during the session.

Sterling Resilience Remains In Focus

We’re observing the Pound showing a familiar resilience around the 1.2850 mark, even as US economic data points to continued strength for the Dollar. This pattern echoes what we saw back in 2025, when external shocks failed to meaningfully weaken Sterling. Traders should be cautious of assuming a straightforward decline for the GBP/USD pair in the weeks ahead. Looking back to 2025, the Pound held firm near 1.34 despite geopolitical conflict and high US inflation that should have boosted the safe-haven Dollar. Today, we face a similar situation with the latest US inflation figures for February 2026 coming in at a persistent 3.4%, yet GBP/USD has found a solid floor. The key factor is that UK wage growth just printed at a surprisingly high 4.1%, suggesting the Bank of England will be slow to cut interest rates. For derivative traders, this means outright short positions on the Pound are risky. We believe a better approach is to use options to express a view, such as buying GBP/USD call spreads to target a move back towards 1.2975 on a limited-risk basis. Implied volatility for one-month options has remained relatively low at 7.2%, making these strategies cheaper than they were a few months ago. The interest rate futures market is now pricing in only two rate cuts from the Bank of England in 2026, compared to three from the US Federal Reserve. This narrowing interest rate differential is providing a fundamental support level for the currency pair. Any dips towards the 1.2800 level will likely be met with significant buying interest.

Options Strategies For A Limited Downside View

Therefore, we are looking at structures that benefit if the Pound either stays range-bound or grinds higher. Selling out-of-the-money GBP/USD put options with an April expiry could be a viable strategy to collect premium, capitalizing on the view that the downside is limited. This reflects the market’s memory of Sterling’s unexpected strength during turbulent periods we witnessed last year. Create your live VT Markets account and start trading now.

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NZD/USD was lower on Wednesday, trading near 0.5910 and down 0.38% on the day. The pair weakened as risk aversion increased in global markets due to rising tensions in the Middle East. The conflict involving the US and Iran added uncertainty, with military activity continuing. Concerns about disruption in the Strait of Hormuz, a major oil shipping route, kept oil markets volatile and increased inflation fears.

Middle East Tensions And Risk Sentiment

Higher energy prices added to inflation concerns in New Zealand and affected expectations for monetary policy. Markets began pricing possible RBNZ rate rises this year, after the bank previously indicated the OCR could stay around 2.25% through the year. The US Dollar strengthened after inflation data. US CPI rose 0.3% month on month in February after 0.2% in January, while annual headline inflation stayed at 2.4% and core inflation stayed at 2.5%. Inflation remained above the Fed’s 2% target, supporting expectations for steady rates in the near term. CME FedWatch showed markets expecting no change at the next meetings, with rising odds of a first cut towards mid-year. Safe-haven demand also supported the Dollar as the outlook stayed unclear. Statements about a possible end to the conflict contrasted with reports that US operations in Iran were intensifying.

Rbnz Fed And Market Volatility

Given the intense pressure from Middle East tensions, we should anticipate further weakness in the NZD/USD pair. This risk-off environment is strengthening the US dollar’s safe-haven appeal, overriding other factors for now. We saw a similar dynamic back in early 2022 when geopolitical events in Europe caused the Dollar Index (DXY) to rally sharply while risk-sensitive currencies like the Kiwi fell. The expectation for the RBNZ to raise interest rates is a significant development, but it is currently a secondary driver. Normally, a more aggressive central bank would boost its currency, as we witnessed during the RBNZ’s rapid hiking cycle through 2023 when they moved to tame inflation. However, global fear is a more powerful force in the short term, and this hawkishness will likely only provide a floor for the Kiwi once geopolitical risks fade. Volatility is the main theme here, and options strategies could be effective. The uncertainty surrounding the conflict is causing large price swings, pushing one-month implied volatility on NZD/USD options above 11%, levels we haven’t consistently seen since the market turmoil of late 2024. This suggests traders are pricing in significant moves, making strategies like buying straddles potentially profitable regardless of the direction. On the US side, inflation remaining steady at 2.4% reinforces the Federal Reserve’s patient stance. While this is a huge improvement from the highs above 6% that we dealt with a few years ago, it is still sticky enough to prevent any rush to cut rates. This policy stability, combined with the demand for safety, makes the US dollar the default choice in the current market. Create your live VT Markets account and start trading now.

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Sterling held steady in the North American session on Wednesday, with GBP/USD near 1.3400. The Middle East conflict entered its twelfth day, while US inflation data supported the US dollar. Market conditions were mixed after Iran’s military said oil could reach $200 a barrel, following attacks on three vessels on Wednesday. The International Energy Agency recommended releasing 400 million barrels of oil to limit price rises.

Market Drivers And Risk Sentiment

US CPI for February matched expectations, with headline inflation at 2.4% year on year and core CPI at 2.5% year on year, both unchanged from January. After the release, markets reduced expectations for a 2026 Federal Reserve rate cut, with 30 basis points of easing priced by December. In the UK, finance minister Rachel Reeves said it is too soon to introduce steps to protect households from higher energy costs. Oxford Economics estimates UK inflation could be 0.4% higher if the Strait of Hormuz stays closed for up to two months. This week includes a speech from Bank of England Governor Andrew Bailey, plus US jobless claims, trade balance, and housing data. Technically, GBP/USD was at 1.3399, with resistance at 1.3430 and 1.3500, and support at 1.3360, 1.3330, and 1.3300. Given the conflict in the Middle East, we are seeing a classic flight to safety, which typically benefits the US dollar. The threat of oil reaching $200 a barrel is causing implied volatility in the energy and currency markets to rise sharply. We are likely seeing the VIX, a key measure of market fear, climb back above the 20-25 range, signaling significant uncertainty for the weeks ahead. This situation feels very similar to the energy shock we experienced back in 2022 after the invasion of Ukraine, when Brent crude shot up over 30% in just a few weeks. The proposed release of 400 million barrels from strategic reserves is a substantial figure, larger than the coordinated releases seen during that period, but it may not be enough to calm markets if the Strait of Hormuz is truly at risk. This historical precedent suggests that oil prices can remain elevated for an extended period, weighing on global growth.

Implications For Rates And Gbp Usd

The steady US inflation figures are making the Federal Reserve’s job more complicated, as the new energy-driven price pressures will argue against cutting interest rates. With the market already reducing bets on rate cuts for 2026, the dollar’s yield advantage is becoming more pronounced. This strengthens the case for a stronger greenback against other currencies. For the UK, the situation is particularly difficult, as the nation is highly sensitive to swings in energy prices, a lesson we learned when inflation soared past 11% in late 2022. The warning that a two-month closure of the Strait of Hormuz could add 0.4% to UK inflation is a serious concern. All eyes will now be on Bank of England Governor Bailey’s speech for clues on how the central bank will navigate rising inflation without crushing economic activity. From a technical standpoint, GBP/USD has already shown weakness by breaking below its previous support line. The combination of a fundamentally stronger dollar and a vulnerable pound points toward further downside. Derivative traders should consider positioning for a move lower, as the path of least resistance appears to be a test of the 1.3300 support level. Buying GBP/USD put options with an expiration in the next four to six weeks could be a prudent strategy to capitalize on this bearish outlook. This approach offers a defined-risk way to profit from a potential decline, especially if the pair breaks below the key 1.3300 psychological level. A sudden de-escalation of the conflict remains the primary risk to this view, which would likely cause a sharp rebound in the pair. Create your live VT Markets account and start trading now.

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Isabel Schnabel, an executive board member of the European Central Bank, said the ECB must monitor how persistent the energy price shock in Europe remains. She also said policymakers must stay vigilant to upside inflation risks. Speaking on Wednesday at the Frankfurt School of Finance and Management Centre for Central Banking in Germany, Schnabel said monetary policy remains in a good place. She added that the ECB’s March projections will partly reflect the Iran shock.

Market Volatility And Rate Cut Expectations

A correction issued on March 11 at 16:17 GMT fixed a misspelling of Schnabel’s surname. With the European Central Bank signaling vigilance on inflation, we should anticipate increased choppiness in the markets. This rhetoric challenges the market’s pricing for a summer rate cut, which means bond and equity volatility is likely to rise. We see the VSTOXX index, a measure of Eurozone volatility, has already ticked up 5% to 17.5 in response to these types of comments and ongoing geopolitical tensions. The focus on persistent energy shocks is a direct warning to interest rate traders. Considering Eurozone core inflation has remained stubbornly above target, recently printing at 2.7% for February 2026, the path for rate cuts is not as clear as it was a few weeks ago. We should consider unwinding positions that bet on an ECB rate cut before the third quarter and look at options that pay off if rates stay higher for longer. The specific mention of an “Iran shock” tied to ECB projections cannot be ignored, especially with recent events. Brent crude has been trading in a tight range but just broke above $85 a barrel for the first time this year on renewed supply chain concerns in the Middle East. This reinforces the upside inflation risk and makes positions in energy derivatives or energy-sector stocks a sensible hedge.

Euro Support From A More Hawkish ECB

This situation feels similar to what we experienced back in 2022, when energy prices forced the ECB’s hand even as the economy was showing signs of weakness. A more hawkish ECB, while other central banks might be considering cuts, could provide support for the euro. Therefore, we are looking at EUR/USD call options as a way to position for potential currency strength in the second quarter. Create your live VT Markets account and start trading now.

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French President Emmanuel Macron said France will work with several countries to limit steps that restrict exports. He said there is a need to define military and political objectives for the war in Iran, during a G7 leaders’ video conference on Wednesday. Macron said there is no justification to lift sanctions on Russia. He said it will take a few weeks to co-ordinate ship escorts in the Strait of Hormuz.

Market Volatility Outlook

He said France’s release of strategic reserves totals 14.5 million barrels. He added that the government may decide further measures to cushion oil price rises for French consumers. The market is signaling high volatility in the coming weeks, as bullish geopolitical tensions clash with bearish government interventions. Traders should anticipate sharp price swings rather than a clear directional trend. The uncertainty around the war in Iran is the dominant factor supporting prices. The delay in coordinating ship escorts through the Strait of Hormuz creates a window of significant risk. About 21% of the world’s daily oil consumption passes through this chokepoint, so any disruption could send prices soaring. This unresolved military objective will likely keep a high-risk premium in the price of crude oil. The announced release of 14.5 million barrels from French strategic reserves will likely have only a temporary impact. For perspective, this amount is less than the volume of oil that passes through Hormuz in a single day. We saw during the larger coordinated releases in 2025 that the market absorbed the extra supply quickly before focusing again on the underlying supply deficit.

Supply Risk And Strategy

Sanctions on Russia continue to remove a significant volume of oil from the market, and OPEC’s spare capacity remains thin, estimated to be under 3 million barrels per day. This lack of a safety net means any further supply disruption will have an amplified effect on prices. The market simply does not have a buffer to handle another major shock. Given this environment, derivative strategies that benefit from increased volatility are advisable. Buying call options to gain exposure to potential price spikes, while using puts to hedge against sudden bearish news, would be a balanced approach. The CBOE Crude Oil Volatility Index (OVX) has already climbed over 15% in the past month, reflecting the market’s growing anxiety over supply security. Create your live VT Markets account and start trading now.

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Hungary’s inflation is reported to have moved back within the central bank’s target range on core measures. A core gauge based on seasonally adjusted month-on-month changes in the core price level is stated to have moderated to within target for most core inflation measures. The report describes an earlier gap between measures as temporary, with disinflationary forces now said to be more established and broader in scope. It links this to support for the Hungarian National Bank’s earlier rate cut and a more dovish policy stance.

Core Inflation Back In Target

Further gradual interest rate cuts are presented as possible, depending on ongoing easing in price pressures and steady external conditions. The pace and size of any cuts are described as conditional on those factors. The forint is not expected to weaken due to rate cuts, with the currency described as being driven mainly by global developments. A softer consumer price inflation reading is said not to have prevented a rebound in the currency. The disinflationary trend we observed through 2025 has largely played out as anticipated, supporting the central bank’s rate-cutting cycle. With the latest data from February 2026 showing headline inflation at 3.6%, the Hungarian National Bank (MNB) had justification for its measured easing path. This has brought the base rate down to its current 5.0% level. This environment suggests that betting on a major decline in the forint due to further rate cuts may be a losing strategy. Despite the MNB’s dovish stance, the forint has shown resilience, trading in a relatively stable range of 388-395 against the euro for much of early 2026. This confirms that global risk sentiment and major central bank policies, particularly from the ECB, are the primary drivers for the currency.

Trading Implications For The Forint

For derivative traders, this points towards selling short-term forint volatility. Given the MNB’s predictable, data-driven approach, surprises are less likely, making options premiums look expensive if the currency remains range-bound. A strategy involving selling EUR/HUF strangles could be effective if this stability persists in the coming weeks. Furthermore, the narrowing interest rate differential between Hungary and the Eurozone has significantly reduced the cost of holding long forint positions. Traders should look at using forward contracts, as the carry is no longer as punitive as it was in 2025. This makes tactical long HUF positions more attractive during periods of positive global sentiment. The key risk to watch is not domestic policy but a shift in the external environment. Any sudden change in guidance from the ECB or an unexpected global risk-off event would likely overwhelm local factors. Therefore, positions should be hedged against a broader market shock rather than a specific MNB action. Create your live VT Markets account and start trading now.

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Gold traded lower on Wednesday, with prices near $5,180 after a daily high of about $5,223.23. A firmer US Dollar and higher Treasury yields limited gains, after US inflation data came in broadly as expected. US CPI rose 0.3% month-on-month in February, up from 0.2% in January, while headline CPI stayed at 2.4% year-on-year. Core CPI rose 0.2% month-on-month, down from 0.3%, and held at 2.5% year-on-year.

Inflation And Rate Expectations

The figures left inflation above the Federal Reserve’s 2% target, and markets expect rates to stay unchanged next week. The US-Iran war entered its 12th day, with the US and Israel striking Iranian military targets and Iran responding with missile and drone attacks. Shipping through the Strait of Hormuz slowed, and the US military said it destroyed 16 Iranian vessels it believed were preparing to lay naval mines. The IEA agreed to release about 400 million barrels of oil from strategic reserves. On the 4-hour chart, gold held above the rising 100-period SMA near $5,139, with resistance at $5,200. RSI eased to about 53 from above 60, while MACD stayed positive; support sits near $5,139, then $5,000, and resistance is near $5,238 and $5,400-$5,500.

Key Levels And Strategy

Looking back to early 2025, we remember gold struggling to break past $5,200 even with an active US-Iran conflict, as a strong dollar capped its gains. Today, with gold trading around $4,950, the environment has changed, but the underlying tensions in the market persist. The resolution of that conflict saw gold prices pull back, and we are now assessing if the floor has been set. The persistent inflation noted back then, when February 2025 CPI was 2.4%, proved to be a long-term issue. The most recent data for February 2026 shows headline CPI has ticked back up to 2.8%, fueling the view that the Federal Reserve will hold rates steady through the summer. This sticky inflation continues to support the US Dollar, creating headwinds for gold just as it did last year. Volatility is a key consideration for us now. During the peak of the 2025 conflict, implied volatility on gold options was extremely high, making it expensive to bet on price direction. Today, the Cboe Gold Volatility Index (GVZ) is trading at a much calmer 16, presenting a cheaper opportunity to buy call options to position for a potential move higher. The geopolitical risk premium has fallen since the war ended, but it has not vanished. WTI crude oil has stabilized around $95 a barrel, well below its 2025 wartime highs but still elevated enough to signal ongoing supply chain concerns in the Strait of Hormuz. This elevated energy cost continues to feed into global inflation, providing underlying support for hard assets like gold. The technical levels from last year are now critical markers for our current strategy. The $5,000 psychological price point, which was an area of support in March 2025, has now become the key resistance level we must overcome. We should consider building positions below this level, using strategies like bull call spreads to target a break toward the old $5,200 resistance zone in the coming weeks. Create your live VT Markets account and start trading now.

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Euro rates remain sensitive to energy price moves, and markets still price European Central Bank rate rises in 2026. Lower energy costs would be expected to remove those hike expectations and push 2-year rates lower. With falling energy prices, 10-year rates could stay near current levels if risk sentiment improves. This scenario assumes inflation pressure eases as energy falls.

Energy Prices And Short Term Rates

If energy prices remain high for longer, the impact depends on the growth outlook. In a scenario where energy prices rise sharply and stay high for many months, the ECB could be pushed towards hiking, lifting the euro swap curve at first. Higher energy costs and tighter policy could then weaken growth and risk sentiment. Markets could move to price looser policy after the initial inflation shock, pulling longer-dated rates lower. Oil prices suggest the Middle East conflict is not yet close to ending. Equities have moved higher, but the VIX indicates risk sentiment remains fragile. Our outlook for rates from here depends entirely on the path of energy prices. With European Central Bank hikes still priced in for this year, the market is highly sensitive to inflation data, especially after February 2026 core inflation came in stubbornly over 3%. This tense situation creates two very distinct paths for traders in the coming weeks.

Two Paths For Euro Rates

A further drop in energy prices, perhaps sparked by a de-escalation in the Middle East, should remove the chance of an ECB hike and pull 2-year rates lower again. We saw this exact dynamic play out in the second half of 2025 when falling energy costs eased pressure on the central bank. This scenario would favor strategies that profit from falling short-term rates, such as buying 2-year swap receivers. On the other hand, if energy prices stay high, with Brent crude holding near its current level of $95 per barrel, the picture becomes more complex. The immediate effect could be an ECB forced to hike, pushing up the entire swap curve as it fights rising inflation. But with recent Eurozone manufacturing PMIs already showing signs of weakness under the 50 mark, this would severely damage the growth outlook. This risk of stagflation means markets would quickly start pricing in rate cuts further down the line, even as they digest a near-term hike. For traders, this points towards positioning for the yield curve to flatten, where longer-dated rates fall more than short-dated ones. The VIX index remains elevated, suggesting risk sentiment is fragile and supports this view of a slowing economy. Create your live VT Markets account and start trading now.

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EUR/GBP fell for a fifth day on Wednesday, trading near 0.8628, close to its lowest level since 4 February. The move came as traders reviewed the policy outlook for the ECB and the BoE amid concerns about higher oil prices linked to the US-Iran conflict. Before the conflict, markets put the chance of a BoE cut at next week’s decision at about 80%. Higher oil prices have increased uncertainty about inflation, which may lead the BoE to delay cuts.

Energy Prices And Inflation Risk

The Office for Budget Responsibility’s David Miles said energy shocks could lift prices, with an estimate of about 1% higher consumer prices by the end of the year if price conditions do not change. The International Energy Agency agreed to release about 400 million barrels of oil from members’ strategic reserves to address rising energy costs. For the ECB, market pricing points to a 60%–70% probability of a rate rise by June. EUR/GBP was weighed down as reduced expectations of BoE cuts supported the Pound more than prospects of ECB tightening supported the Euro. Joachim Nagel said the ECB would act if an energy price surge leads to lasting higher inflation, and he noted increased inflation risk alongside a weaker economic outlook. Last year, we saw how an oil price shock linked to the US-Iran conflict forced the Bank of England to delay expected rate cuts. This unexpected hawkishness provided significant support for the Pound against the Euro. This dynamic established a clear pattern where energy-driven inflation gives the BoE a reason to remain tighter for longer.

Trading Implications For Eur Gbp

Today, we see a similar divergence brewing, even without a major conflict. Recent statistics show UK inflation remains stubbornly high at 4.0%, while inflation in the Eurozone has fallen more convincingly to 2.8%. This data gives the Bank of England far less room to consider rate cuts compared to the European Central Bank. This reinforces the case for positioning for continued EUR/GBP weakness in the coming weeks. Traders should consider using options to express a bearish view on the pair, such as buying puts on EUR/GBP. This strategy allows for profiting from a downward move while clearly defining the maximum risk involved. The underlying driver is the difference in policy expectations, which can be traded directly through interest rate derivatives. The current environment suggests looking at positions that profit from UK interest rates staying elevated compared to those in the Eurozone. This trade capitalizes on the view that the market is still underpricing the BoE’s need to fight stickier domestic inflation. We can recall the period after the 2022 energy crisis, where the UK’s inflation problem proved more stubborn than the Eurozone’s for an extended period. That history, combined with the fragile growth outlook for Germany, Europe’s largest economy, suggests any new supply shocks would likely hit the Euro harder. This reinforces the bearish outlook for the currency pair moving forward. Create your live VT Markets account and start trading now.

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Canada’s oil and gas sector is smaller than a decade ago, but it still supports output and trade. In 2025 it accounts for 6.6% of GDP and 15% of total goods exports. Higher oil prices raise fuel costs and can reduce household spending power. At the same time, they increase corporate profits and government natural resource royalties.

How Higher Oil Prices Feed Into Inflation

Beyond fuel, higher energy prices can lift costs for items such as packaging and fertiliser across many industries. These effects tend to build only if oil prices stay high for months, as firms review supply chains and pricing. The inflation effect may be softer if weaker household demand lowers spending on non-energy goods and services. RBC Economics expects only gradual and conditional pass-through to broader prices. Oil and gas investment in 2025 is less than half its 2014 share of GDP. Most remaining spending is aimed at maintaining current production, so new investment is limited and less responsive to oil price swings, leaving the overall GDP effect broadly neutral. Given the recent rise in Western Canadian Select prices to around $75 a barrel, we should revisit the analysis from 2025. That view suggested the Canadian economy’s overall reaction to oil price swings would be muted. This implies that current market volatility may be exaggerated, creating openings for trades based on a more neutral outcome.

Trading Implications For Cad Inflation And Equities

Historically, we would expect the Canadian dollar to rally hard alongside oil. However, with forecasts for 2026 confirming that capital investment in the energy sector remains focused on maintenance rather than growth, the mechanism for a stronger loonie is weaker. This supports strategies that bet against significant CAD strength, such as buying call options on the USD/CAD pair. The pass-through to broader inflation appears to be gradual, just as was predicted last year. The latest Statistics Canada data from February showed headline inflation at a manageable 2.4%, indicating that higher fuel costs have not yet broadly infected other sectors. This reinforces the Bank of Canada’s recent decision to hold rates, suggesting that derivatives pricing in imminent rate hikes are likely mispriced. We should focus on the clear split between benefiting energy producers and squeezed domestic consumers. A pair trade, going long derivatives tied to the energy sector ETF while shorting consumer discretionary stocks, seems like a direct way to play this dynamic. This strategy isolates the divergent impacts of expensive oil within the Canadian economy. The thinking from 2025 that the net impact on GDP would be largely neutral seems to be holding true. This means that a spike in oil may not destabilize the broader S&P/TSX 60 index as much as it would have a decade ago. Consequently, selling volatility on the index through option strategies could prove effective, capitalizing on this reduced economic sensitivity. Create your live VT Markets account and start trading now.

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