NZD/USD fell for a fourth day, trading near 0.5750 on Friday and down 0.17%. The move followed renewed risk aversion and a firm US Dollar. Geopolitical tensions in the Middle East supported demand for the US Dollar. US President Donald Trump paused planned strikes on Iranian energy infrastructure for ten days, while Iran shut the Strait of Hormuz.

Market Drivers

Higher US yields also supported the US Dollar, with the 10-year Treasury near 4.45%. Energy concerns added to inflation worries. US data was mixed as the University of Michigan Consumer Sentiment Index fell to 53.3 in March from 55.5. One-year inflation expectations rose to 3.8%. Federal Reserve officials kept a cautious stance on inflation risks and policy. They referred to the potential effects of energy price shocks on inflation expectations. In New Zealand, the ANZ-Roy Morgan Consumer Confidence Index fell to 91.3 in March from 100.1 in February. The decline added pressure to the New Zealand Dollar.

Trading Considerations

Reserve Bank of New Zealand Governor Anna Breman said the bank may look through temporary energy-driven inflation. She also said rates could rise if inflation expectations become unanchored. We are seeing a familiar pattern in NZD/USD, with the pair testing lower levels amidst rising geopolitical tensions, this time in the South China Sea. This mirrors the situation back in 2025 when Middle East conflicts drove a similar flight to safety. The US Dollar is once again the primary beneficiary of this risk-off sentiment. The US Dollar’s strength is underpinned by firm Treasury yields, with the 10-year note holding around 4.35%. Recent data shows a resilient economy, as the latest CPI report came in hotter than expected at 0.4% month-over-month, overshadowing a slightly softer Non-Farm Payrolls number of 175,000. This reinforces the view that the Federal Reserve will delay any potential rate cuts, supporting the dollar. In New Zealand, the domestic picture is deteriorating, as evidenced by the latest ANZ-Roy Morgan Consumer Confidence index which fell to 88.5. This weakness complicates the task for the Reserve Bank of New Zealand, which is holding its Official Cash Rate at 5.50%. The market is now pricing out any rate cuts for 2026 as the RBNZ battles imported inflation from a weaker currency. Given the bearish outlook for NZD/USD, traders could consider buying put options to position for further downside while capping their maximum loss. Selling call options or establishing a bear call spread could also be viable strategies to collect premium, betting that the pair will not rise significantly in the coming weeks. Implied volatility has ticked up to 9.2% for one-month options, suggesting that option sellers are getting better compensation for the risks. Create your live VT Markets account and start trading now.

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ING reported that higher oil prices and supply disruption risks are weakening growth, pushing up inflation, and worsening the Philippines’ external balances. It said tighter monetary policy on its own is unlikely to alter the peso’s path against the US dollar in the coming months. The report said the oil shock led the Philippines to declare a national emergency amid crude shortages and rising pump prices. It said this raised downside risks to growth and led to a growth forecast cut.

Oil Shock Rekindles Policy Dilemma

It noted Brent crude rose about 40% month on month in March. It said this makes headline inflation likely to exceed the target band under its base case. ING said CPI could pass 4% as early as March. It said this increases the chance of a BSP rate rise as early as April. Under a base case where the current conflict eases soon, it said the BSP may keep rates unchanged in April. Under a longer-war scenario with oil above $100 per barrel, it said the BSP may consider an April rise. The report said these conditions raise depreciation risk for the peso. It also cited BSP guidance that it is not targeting a specific exchange-rate level and that FX intervention remains modest.

Trading Playbook For Volatile Markets

The current oil shock, with Brent crude surging 25% this quarter to nearly $95 a barrel, is creating a familiar policy dilemma. This environment mirrors the pressures we saw back in 2025 when a similar energy spike threatened growth. For traders, this historical parallel provides a clear playbook for the weeks ahead. Higher energy costs are already pushing inflation past the official target, with the February 2026 consumer price index hitting 4.8% for the second consecutive month above the 4% ceiling. This raises the probability of an early rate hike by the Bangko Sentral ng Pilipinas. We see value in positioning for this by paying the fixed leg on Philippine interest rate swaps. This inflation and the country’s high import bill are putting significant pressure on the currency. The Philippine peso has already slid to 59.50 against the dollar, revisiting the lows from the 2025 turmoil. Given that the central bank appears comfortable with gradual depreciation, buying U.S. dollar calls against the peso is a prudent strategy to hedge against further weakness. The central bank’s difficult choice between supporting a weaker economy and fighting inflation is increasing market uncertainty. This tension is reflected in rising implied volatility in the foreign exchange markets. Therefore, strategies that benefit from large price swings, such as long straddles on the USD/PHP pair, should be considered. Create your live VT Markets account and start trading now.

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Baker Hughes reported that the number of active US oil rigs fell to 409. The previous count was 414. The US oil rig count has fallen to 409, a drop of five rigs from the previous week. This suggests a potential slowdown in future American oil production. We should interpret this as a bullish signal for crude oil prices over the next two to three months.

Rig Count Decline Signals Tighter Supply

This decline continues the trend of capital discipline we saw from shale producers throughout 2025, when the rig count first stalled below the 450 mark. Producers are clearly prioritizing profitability over aggressive expansion. This sustained reduction in drilling activity strengthens the argument for tighter domestic supply later this year. This news lands as current inventories are already shrinking. The latest report from the Energy Information Administration showed US crude stockpiles fell by 2.8 million barrels, surprising the market which had expected a small build. This marks the second consecutive weekly inventory draw, reinforcing the view that demand is robust. Globally, the supply picture is also supportive, as OPEC+ has signaled it will maintain its current production quotas through the second quarter. With little chance of a surprise supply increase from the group, the path is clearer for prices to move higher. This coordinated supply management reduces a major downside risk for oil. Therefore, we should consider buying call options on front-month WTI futures contracts to position for a potential price increase. Implied volatility is currently hovering around 34%, which is not excessively high and makes purchasing premium a viable strategy. Bull call spreads could also be used to lower the cost of entry and define risk.

Demand Trends Support Higher Prices

On the demand side, recent data shows global travel nearing pre-pandemic highs, particularly in the Asia-Pacific region. This provides a solid fundamental floor for consumption. We are watching for any signs of economic slowdown, but the current data supports a constructive outlook for energy demand. Create your live VT Markets account and start trading now.

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Standard Chartered said Banxico’s surprise 25 bps rate cut, and guidance for another easing step, has raised downside risks for the Mexican peso (MXN). The bank also pointed to crowded MXN long positioning and a reduced carry advantage versus other emerging market high-yield currencies. It said USD/MXN may serve as a hedge for emerging market risk, with potential for larger moves if Middle East conflict escalates. It also said positioning is crowded, including among CTAs and longer-term holders. The bank said MXN’s carry advantage has narrowed, while Banxico has signalled another cut and appeared willing to tolerate inflation pass-through from FX weakness. It added that weaker domestic growth momentum supports the case for short MXN positions. It said the balance of risks points to more rate cuts, with growth affected by uncertainty around renegotiation of the USMCA trade deal. It added that rising inflation may limit the scope for further easing. Looking back at Banxico’s surprise 25 basis point cut in 2025, we saw the beginning of a clear policy pivot. This move, and the guidance that followed, signaled a new tolerance for peso weakness to support a flagging economy. Consequently, downside risks for the Mexican Peso have grown, making short positions through derivatives look increasingly viable. We believe that long MXN positioning remains crowded, a hangover from the profitable carry trade of previous years. The latest CFTC data from the week ending March 24, 2026, shows that while speculative net longs have dipped, they remain historically elevated. This leaves the currency vulnerable to a sharp sell-off if sentiment sours further. The peso’s carry advantage has also narrowed against peers like the Brazilian Real, making it a less compelling hold. With Banxico signaling it is willing to look through inflation concerns to focus on growth, the path of least resistance is for lower rates. This view is reinforced by recent data confirming Q4 2025 GDP growth was a sluggish 1.2%, with little sign of a rebound. Given this, we see buying USD/MXN calls as an attractive way to position for peso weakness, especially as a hedge against global risk. Heightened tensions in the Middle East have pushed Brent crude back over $85 a barrel, and any further escalation would likely trigger a flight to the safety of the US dollar. Uncertainty surrounding the ongoing USMCA trade renegotiations also adds to the bearish outlook for the peso. That said, we must watch the inflation data, which has remained sticky. The latest report for February showed headline inflation running at 4.7%, which is still well above the central bank’s target. This persistence may constrain how much more Banxico can cut rates this year, potentially limiting the pace of the peso’s decline.

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GBP/USD stayed above 1.3300 on Friday but was set for a weekly fall of 0.20% and monthly losses of more than 1%. Demand for the US Dollar rose as risk appetite fell due to Middle East conflict and higher energy risk. US President Donald Trump said attacks on Iran’s energy facilities would be delayed for 10 days until 6 April. Oil prices first fell, then WTI reversed, while reports said the Islamic Revolutionary Guard Corps shut the Strait of Hormuz.

Dollar Demand Rises On Risk Aversion

Wall Street fell and the US Dollar Index (DXY) was set for weekly gains of over 0.45%; it stood at 99.94, little changed on the day. The University of Michigan Consumer Sentiment Index dropped from 55.5 to 53.3 versus 54 expected. US 12-month inflation expectations rose from 3.4% to 3.8%, while 5-year expectations stayed at 3.2%. In the UK, Retail Sales fell -0.4% month-on-month in February after 2% growth in January. Money markets priced out rate cuts and implied a 5 basis point Fed rise by year-end and 78 basis points of Bank of England rises. GBP/USD was near 1.3311, with resistance just above 1.3400 and support at 1.3220, then 1.3100 and 1.3000. Looking back to this time last year, we saw GBP/USD struggling around 1.3300 due to Middle East tensions and a strong US dollar. That bearish sentiment was justified, as the pair has since fallen to the mid-1.2600s in March 2026. The fundamental drivers from 2025, particularly the divergence in economic outlooks, have now fully materialized. The market correctly anticipated the Bank of England would be forced to hike rates significantly through 2025 to combat inflation. Despite these hikes bringing the base rate to 5.5%, UK inflation remains stubbornly high, with the latest CPI data for February 2026 showing a 3.5% annual rate. This stagflationary environment continues to weigh on the pound, validating the concerns we saw surface with last year’s weak retail sales data.

Options And Forward Markets To Watch

Meanwhile, the Federal Reserve also tightened policy, but the US economy has proven more resilient. With US CPI for February 2026 coming in lower at 3.1%, the narrative of the Fed being in a better position to consider easing policy before the Bank of England is gaining traction. This monetary policy divergence continues to favor the US dollar. Given this context, implied volatility on GBP/USD options remains elevated compared to historical norms, reflecting the ongoing uncertainty. Traders should consider buying straddles or strangles to profit from potential sharp moves, especially around upcoming central bank meetings. This strategy allows us to capitalize on price swings without needing to predict the exact direction. For those with a directional view, buying GBP/USD put options offers a clear way to position for further sterling weakness. A break below the 1.2600 level could open the door for a move towards the 1.2500 psychological support area in the coming weeks. Using options defines our risk to the premium paid while providing exposure to downside momentum. The interest rate differential, while narrow, is a key factor in the forwards market. We should monitor the pricing of forward contracts, as they will reflect market expectations of the Fed cutting rates sooner than the BoE. This setup could present opportunities in forward rate agreements or currency swaps for those looking to trade on evolving monetary policy timelines. Create your live VT Markets account and start trading now.

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WTI crude rose to about $96.00 on Friday, up 3.55% on the day. The move followed fears of a longer Middle East conflict involving Iran and possible disruption to global supply. Sentiment briefly improved after Tehran allowed several oil tankers to pass, but it then weakened as strikes continued. US President Donald Trump said talks were going “very well”, while Iranian officials said they were waiting for Washington’s response on ceasefire conditions.

Rising Military Risk In The Gulf

The Wall Street Journal reported the Pentagon is considering sending 10,000 more troops to the Middle East. This increased concern about disruption or closure of the Strait of Hormuz, a key route for global oil shipments. ING said about 8 million barrels per day are already affected, with more supply still exposed to potential disruption. Oil prices stayed volatile and closely tied to diplomatic and military developments. WTI stands for West Texas Intermediate, a US-produced benchmark crude traded via the Cushing hub. Prices are driven by supply and demand, geopolitical events, OPEC decisions, the US Dollar, and weekly inventory data from the API and the EIA, which tend to be within 1% of each other 75% of the time. With WTI crude now trading around $88, we see a familiar geopolitical premium returning to the market. Recent naval standoffs near the Strait of Hormuz are raising fears of supply disruptions. This situation mirrors the uncertainty that caused prices to spike well into the $90s back in 2025.

Options Strategy Amid Elevated Volatility

The upward pressure is not just from headlines, as supply fundamentals appear tight. The Energy Information Administration (EIA) reported a surprise crude inventory draw of 3.1 million barrels this week, countering forecasts of a build. This comes as OPEC+ has signaled it will maintain its current production cuts through the next quarter, keeping supply constrained. Given these upside risks, we should be considering long positions through derivatives. Buying near-term call options on WTI futures could capture gains from a sharp price spike. For a more cost-effective approach, bull call spreads would allow us to profit from a moderate price rise while capping both risk and upfront cost. We must remain aware that prices are highly sensitive to diplomatic news, just as they were in 2025. Implied volatility is elevated, meaning options are expensive, but this also reflects the high degree of uncertainty. Any signs of de-escalation could quickly erase the current premium, making it essential to manage position sizes carefully. Create your live VT Markets account and start trading now.

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Gold rose on Friday after dropping nearly 2.75% the day before. It traded near $4,527, up over 3.00%, as the US Dollar Index eased after briefly moving above 100.00. University of Michigan March data showed weaker sentiment and higher near-term inflation views. The Consumer Sentiment Index was 53.3 (54 expected, 55.5 prior) and the Consumer Expectations Index fell to 51.7 from 54.1.

Inflation Expectations Rising

Inflation expectations for the next year rose to 3.8% from 3.4%. The 5-year inflation outlook stayed at 3.2%. US President Donald Trump said planned strikes on Iran’s energy sites would be delayed. The deadline was extended by 10 days, with a pause stated to run until “April 6, 2026, at 8 P.M., Eastern Time”. The Wall Street Journal reported the Pentagon is considering sending 10,000 more ground troops to the Middle East. The Strait of Hormuz faced restrictions, which kept oil prices elevated. Markets shifted interest rate expectations, with CME FedWatch pricing out any cut this year. It showed a 50% chance of higher borrowing costs by end-2026, versus 2–3 cuts expected before the US-Iran war.

Rates Volatility And Gold Levels

US 10-year yields rose to about 4.45%, the highest since July 2025. Gold had been near $4,100 earlier in the week, with resistance at $4,581 and $4,843, and support at $4,300 and about $4,098. Given the conflicting signals, we see the current environment as being defined by high volatility rather than a clear directional trend for gold. The tension between geopolitical safe-haven demand and the pressure from hawkish interest rate expectations makes straightforward long or short positions risky. Therefore, derivative strategies that profit from large price swings should be favored in the coming weeks. The April 6th deadline for strikes on Iran is the key event horizon, and we expect implied volatility to rise significantly as we approach that date. We are looking to buy options straddles or strangles that expire in mid-April to capitalize on a potential price spike, regardless of the direction. Historically, during the onset of major geopolitical events like the conflict in Ukraine in 2022, the VIX volatility index jumped over 80% in a matter of weeks, highlighting the potential for explosive moves. However, the underlying macro trend appears bearish for gold as long as a full-scale war is averted. The surge in oil is fueling inflation fears, which is the primary reason the market has shifted from expecting rate cuts to now pricing in a 50% chance of a hike this year. We saw a similar dynamic in 2022, when surging energy prices caused the 5-year breakeven inflation rate to jump by 25% in a single month, forcing the Fed to become more aggressive. With this bearish tilt in mind, any rallies in gold should be viewed as opportunities to establish positions that benefit from a potential fall. We see the resistance at $4,581 as a key level to watch for selling pressure to re-emerge. Traders could consider buying puts or implementing bear call spreads if the price approaches this area without a fundamental escalation in the Middle East conflict. The persistent strength in the US Dollar, which is benefiting from its own safe-haven status and rising Treasury yields, presents another headwind. While some may use gold to hedge, the dollar is currently the more dominant haven asset. We would therefore use out-of-the-money call options on gold primarily as a cheap tail-risk hedge against a worst-case scenario, rather than as a core portfolio position. Create your live VT Markets account and start trading now.

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Richmond Fed President Thomas Barkin said on Friday it is prudent to keep interest rates steady for now, as policymakers wait for clearer direction on the economic outlook. He cited rising uncertainty linked to geopolitical tensions, inflation risks and fast changes driven by artificial intelligence. Barkin said the “pace and uncertainty of changes around AI” have made many Fed officials “uneasy”. He said war and rapid AI-driven changes have again clouded the outlook.

Policy Uncertainty And AI Driven Change

He said that even before an oil shock, progress on inflation was at risk of stalling. He added that higher petrol prices can damage consumer sentiment and crowd out other spending. Barkin said he will be watching inflation data and inflation expectations closely. He said demand has been steady but still feels “narrow”, supported by AI investment and wealthier households. He said the unemployment rate is low, but the labour market feels “fragile”. He added that firms report little wage pressure and see multiple applicants for each job. The current unease and uncertainty suggest that market volatility may increase in the coming weeks. With the VIX index currently moderate around 18, purchasing options like straddles on the S&P 500 could be a prudent way to position for a larger-than-expected market move. This is reminiscent of the quick volatility spikes we saw during geopolitical flare-ups in 2025.

Rates Volatility And Derivatives Positioning

We should expect short-term interest rate derivatives to remain anchored for now, as policymakers are clearly in a holding pattern. However, the fragility they see means traders could use options on SOFR futures to position for a sharp move later in the year if the data forces a sudden policy shift. The market is currently pricing in only a single rate cut by year-end, a significant reduction from the three cuts anticipated at the start of the year. The risk of inflation stalling requires close attention, especially with WTI crude oil now pushing past $85 a barrel due to new geopolitical tensions. Buying call options on oil futures could serve as a direct hedge against further price shocks that would pressure consumers. With the latest core CPI data still over 3%, inflation remains a key threat that we saw re-emerge periodically throughout 2025. We are seeing a clear divergence in the market, with demand heavily concentrated in AI-related sectors while other areas lag. This suggests considering pairs trades, such as buying calls on a semiconductor ETF while buying puts on a retail or small-cap index. The performance gap is stark, with the SOX index having outperformed the Russell 2000 by over 15 percentage points so far this year. The underlying fragility in the labor market, despite the low unemployment rate, points to a potential downside risk. Purchasing longer-dated, out-of-the-money put options on broad market indices is a relatively low-cost way to insure against this risk becoming a reality. Recent weekly jobless claims ticking up toward 225,000 and falling job openings support this cautious view. Create your live VT Markets account and start trading now.

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EUR/USD rose on Friday after an early dip, as the US Dollar eased from intraday highs. The pair traded near 1.1545 after falling to a daily low of 1.1501. The move followed a technical pause in the US Dollar’s advance after a weekly rally. The US Dollar Index (DXY) had pushed above 100.00, and later hovered near 99.85.

Dollar Holds Weekly Gains

The DXY is still set for weekly gains amid ongoing Middle East tensions. Trading was calmer on Friday due to a lack of new headlines. University of Michigan data weakened, with the Consumer Sentiment Index at 53.3 in March versus 55.5 in the preliminary reading. The Consumer Expectations Index fell to 51.7 from 54.1. Inflation expectations increased, with the 1-year outlook rising to 3.8% from 3.4%. The 5-year expectation stayed at 3.2%. Richmond Fed President Thomas Barkin said higher petrol prices are weighing on sentiment and may reduce other spending. He said inflation progress risked stalling and described the labour market as fragile despite low unemployment.

Oil And Rates Drive Markets

Donald Trump delayed planned strikes on Iran’s energy infrastructure by 10 days. With the Strait of Hormuz largely closed, oil prices stayed elevated, and traders priced in 2–3 ECB hikes by year-end while trimming expectations for Fed cuts. We remember how the Dollar paused around the 100 mark on the DXY in March of 2025, which gave the Euro a brief lift. A year later, the situation is quite different, with the Dollar Index now trading firmly above 104.50. This has pushed the EUR/USD pair down towards the 1.0750 level, showing sustained dollar strength. The inflation concerns from last year proved to be well-founded, as markets correctly priced in the European Central Bank’s subsequent rate hikes. The Fed, on the other hand, abandoned any talk of cuts and has held rates firm, with the federal funds rate currently in the 5.25% to 5.50% range. Recent US inflation data for February 2026, showing the Consumer Price Index at 2.8%, confirms that the battle is not yet over. With central bank policy rates expected to remain high, implied volatility in currency options is likely to stay elevated. This environment presents opportunities for traders to consider selling volatility, such as through short straddle or strangle strategies on EUR/USD, if we expect a period of range-bound trading. This approach benefits from time decay, which is accelerated in a high-interest-rate world. We must not forget the geopolitical risks that were present in 2025, as tensions in the Middle East remain a factor. While the acute crisis over the Strait of Hormuz has eased, crude oil prices continue to be a source of inflationary pressure, with WTI crude currently trading near $82 per barrel. Any escalation could quickly disrupt markets and undermine strategies based on stable conditions. Create your live VT Markets account and start trading now.

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Rising oil prices are reinforcing hawkish pricing in euro area rates, with ECB officials offering little resistance. This has supported expectations for higher short-dated euro rates. A separate view is developing that energy disruption may last longer than first expected. ECB President Christine Lagarde said war-related risks may be underestimated and that technical experts see infrastructure damage as enough to disrupt energy supply for years rather than months.

Energy Disruption And Policy Response

Lagarde also said that “large, sustained deviations call for forceful monetary policy action”. This points to the possibility of higher rates not only at the front end but also across the 2-year to 10-year maturities. The front end is again pricing more than three ECB rate rises this year. The report states it was produced using an Artificial Intelligence tool and reviewed by an editor. Last year, we saw European Central Bank officials doing little to discourage bets on higher rates. The ongoing oil shock was creating a complicated picture for the path of monetary policy. President Lagarde’s warnings about long-lasting energy supply damage suggested that rate hikes could be more forceful than anticipated. That hawkish outlook from 2025 proved correct, as core inflation in the Eurozone is still hovering around 3.1% as of last month. Lingering supply issues have kept Brent crude prices firm above $95 a barrel, significantly higher than the average in late 2025. This forced the ECB’s hand into a surprise 25 basis point hike in February, confirming the fears of a prolonged tightening cycle.

Trading And Volatility Implications

This environment suggests paying to receive fixed rates on short-term euro interest rate swaps (IRS) remains a risky proposition. The entire yield curve has shifted higher since last year, with the German 2-year yield now at 3.5%, showing how the front-end is leading the charge. Traders should consider positioning for further hawkish surprises by using options on Euribor futures, buying calls or call spreads to profit from rates moving even higher than currently priced. Given the continued uncertainty, implied volatility on EUR-denominated assets is likely to remain elevated. This makes selling options, such as writing strangles on the Euro Stoxx 50 index, potentially profitable but also exposes traders to sharp, unexpected moves. A more cautious approach would be to buy volatility through structures like VSTOXX futures, anticipating more policy-driven market swings in the coming months. Create your live VT Markets account and start trading now.

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