Gold trimmed earlier losses on Monday but stayed more than 1.50% below its open, trading at $5,090. Shipping disruption in the Strait of Hormuz pushed WTI up over 30% to near $113 a barrel, with reports also placing crude near $120. Higher oil prices lifted the US Dollar and weighed on gold, as oil is priced in dollars. The dollar reached a near three-month high, last seen in late November 2025, while the US Dollar Index rose 0.26 to 99.11.

Geopolitical Tensions And Market Impact

Hostilities continued with Israel attacking central Iran and Beirut. The Strait of Hormuz remained shut, through which about a fifth of global oil is shipped. Tehran named Mojtaba Khamenei as Supreme Leader Ayatollah on Sunday. The Financial Times reported that G7 finance ministers plan to discuss releasing petroleum from reserves. Swaps markets priced 36 basis points of Federal Reserve rate cuts by end-2026, according to Prime Market Terminal. The New York Fed SCE showed one-year inflation expectations at 3% in February, down from 3.1% in January, with three- and five-year forecasts steady at 3%. Upcoming US data includes jobs, housing, consumer inflation, and Core PCE. Technically, gold traded within $5,000–$5,194, with resistance near $5,200 and support at $5,050, $5,000, the 50-day SMA near $4,868, and $4,841. Central banks added 1,136 tonnes of gold worth about $70 billion in 2022, the highest yearly purchase on record.

Trading Signals And Forward Views

The current market is being driven by a massive oil shock, not typical safe-haven flows. We are seeing the US Dollar strengthen significantly because oil is priced in dollars, and this strength is pushing gold prices down despite the geopolitical crisis. For now, traders should recognize that the dollar’s reaction to oil is the most important factor, overpowering gold’s traditional role. Volatility in the crude oil market is the main play for the coming weeks. With West Texas Intermediate oil surging over 30%, options pricing shows implied volatility has reached levels not seen since the initial conflict escalations in 2022. The potential for a strategic petroleum release from G7 nations creates a two-sided risk, making strategies that profit from large price swings, like straddles, more logical than betting on one direction. Gold is currently caught between a strong dollar pushing it down and geopolitical fear supporting it. The technical chart shows a clear range between $5,000 and the $5,200 resistance level, suggesting that range-bound strategies on derivatives could be effective. Open interest data shows a recent buildup in options contracts at these specific strike prices, indicating that many in the market are also positioning for this consolidation to continue. We believe the US Dollar will continue to show strength, especially against the currencies of major oil-importing regions like Japan and the Eurozone. The Dollar Index (DXY) has already climbed over 2% this month, and historical precedents from past oil shocks, like those in the 1970s, show an initial flight to the dollar. Long dollar positions against the yen (USD/JPY) or euro (EUR/USD) could be a primary macro trade. The Federal Reserve’s path is now highly uncertain, with swaps markets pricing out most of the rate cuts we had expected for 2026. The upcoming Core PCE inflation data is now the most critical economic release, as a high number could force the market to price in no cuts at all. This situation feels very similar to the persistent inflation we dealt with back in 2023, where bets on a Fed pivot were repeatedly proven wrong. Overall market fear is elevated and should be monitored through the VIX index. The index has jumped above 25, a level we last saw during the banking system stress in early 2025, signaling widespread uncertainty. Using VIX options or futures can provide a direct hedge against a further escalation of the conflict in the Middle East or a larger economic fallout from sustained high energy prices. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

MUFG analysis looks at how higher oil prices and a longer closure of the Strait of Hormuz could affect Bangko Sentral ng Pilipinas (BSP) policy. The base case remains two further rate cuts to 3.75% in 2026, assuming oil falls to US$70/bbl by 2Q2026 and the disruption ends by March 2026. The analysis sets out scenarios where sustained oil at US$90–100/bbl would lift inflation above the BSP’s 4% ceiling in 2026 and could extend into 2027. Under a US$90/bbl case, inflation is projected to breach 4% in 2026 before easing to 3.2% in 2027.

Oil Shock Scenarios And Inflation Path

With oil prices above US$100/bbl, inflation is expected to stay above 4% in both 2026 and likely 2027. The analysis links this to the risk of more persistent inflation and higher inflation expectations. It also draws a distinction between a temporary supply shock and a longer-lasting shift that may require a policy response. A rate rise is not assumed in the near term, but the risk increases if inflation persistence grows while economic growth weakens. The base case for two rate cuts this year is now under serious threat. With Brent crude trading stubbornly around US$95 per barrel this morning and the latest Philippine Statistics Authority report showing February inflation ticked up to 4.1%, the conditions for easing are quickly evaporating. The market is beginning to price out the probability of the June and October cuts we were expecting. This is no longer a distant risk, as the geopolitical crisis in the Strait of Hormuz has not been resolved by the March deadline we had hoped for. This persistence suggests the oil price shock may not be as temporary as the COVID-era supply disruptions were, raising the chance that higher inflation expectations become embedded. Traders should be wary of holding positions that are heavily reliant on lower interest rates in the second half of the year.

Trading Implications For Rates And Fx

In the derivatives market, this means unwinding receive-fixed positions in Philippine interest rate swaps, as the prospect of rate cuts fades. We see value in paying fixed rates on shorter-term swaps, positioning for the BSP to remain on hold for longer than previously anticipated. The odds are shifting from a rate-cutting cycle to a prolonged pause. We remember from the 2022 inflation shock, which pushed prices up over 8% in the Philippines, that the BSP is not afraid to hike aggressively to defend its mandate, even at the cost of growth. That historical precedent suggests the central bank’s pain threshold for inflation is lower than for economic weakness. Sustained oil prices above US$100 would make a rate hike, not a cut, a real possibility for late 2026. For currency traders, this changes the outlook for the Philippine Peso. A more hawkish BSP would provide a supportive floor for the currency, countering some of the negative sentiment from higher oil import costs. We should consider buying call options on the PHP or selling out-of-the-money call options on USD/PHP to position for a stronger-than-expected peso. The primary focus for the coming weeks should be on adjusting portfolios away from the rate cut narrative. The risk is now skewed towards the BSP maintaining its current policy rate of 4.25%, or even being forced to tighten if oil prices escalate further. Using options to hedge against a surprise hike later in the year would be a prudent strategy. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

Central and Eastern European (CEE) markets are described as highly exposed to the US–Iran conflict and rising oil prices, with geopolitics expected to outweigh scheduled local data from Hungary, Turkey and Poland. Following a sharp sell-off in rates on Friday, regional currencies are expected to face renewed pressure, with attention on EUR/HUF and the unwinding of long HUF positions. Hungary is due to publish February inflation on Tuesday, expected at 1.5% year-on-year, which would be the lowest level this year and below both market and National Bank of Hungary expectations. Turkey’s central bank meets on Thursday, with higher-than-expected inflation and geopolitical risks pointing to a pause in its easing cycle at 37%.

Oil Driven Volatility In CEE

Poland is set to release February inflation on Friday, expected to be unchanged at 2.2% year-on-year. CEE assets are presented as sensitive to higher energy costs, with oil-price moves feeding into inflation concerns and currency performance, especially for the forint. We saw this exact scenario play out in early 2025, when tensions in the Middle East drove a significant sell-off in regional rates and currencies. The Hungarian forint was under the most pressure as rising oil prices forced a rapid unwind of what was then a very crowded long position. This memory should guide our actions today as similar pressures are re-emerging. With Brent crude futures having climbed back over $95 a barrel in the last two weeks, we are seeing history repeat itself. February’s inflation figures from Hungary just last week showed an unexpected acceleration to 4.1%, highlighting how vulnerable the economy is to energy shocks. This renewed price pressure will almost certainly halt any further rate cuts from the National Bank of Hungary. For derivative traders, this is a clear signal to hedge against or speculate on further forint weakness. Buying EUR/HUF call options with one- to two-month expiries is a direct way to position for a move higher in the currency pair. Implied volatility in the forint has already jumped by 20% since late February, indicating the market is bracing for significant swings. We must also watch Poland, which released inflation data showing a stubborn hold above 3.5% last month. While the zloty is generally considered more resilient than the forint, it is not immune to regional sentiment driven by energy costs. A relative value trade, being long the Polish zloty against the Hungarian forint (long PLN/HUF), could offer a way to isolate the differing vulnerabilities within the CEE region.

Geopolitics Over Local Data

Ultimately, we have to put the local economic calendars aside for now. The primary driver for CEE assets in the coming weeks will be the price of oil and its impact on inflation expectations. Our attention should be focused on global geopolitical developments, as they will continue to dominate regional market performance. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

Gold fell early on Monday, then steadied near $5,109 after a low around $5,014. Prices were down about 0.95%, with weaker US Treasury yields and a softer US Dollar limiting further falls. The US-Iran conflict has kept gold volatile, while disruption to Oil flows through the Strait of Hormuz pushed crude higher. WTI reached about $113, the highest since June 2022, then pulled back after reports of G7 talks on an IEA-led reserves release, and later traded near $91.40, up nearly 3%.

Rate Cut Expectations Shift

Higher Oil prices have lifted inflation concerns and reduced expectations of near-term rate cuts. The CME FedWatch Tool puts the chance of a 25 bps Fed cut in June at around 30%, down from roughly 50% a month ago, with July near 40%. US jobs data added to uncertainty, with payrolls down 92K in February versus a 59K rise expected, after a 126K gain in January. Unemployment rose to 4.4% from 4.3%, while CPI is seen at 2.4% YoY and core PCE at 3.0% YoY. Technically, XAU/USD is ranging between $5,000 and $5,200, with the 100-period SMA near $5,118 and the 50-period SMA around $5,189. A break below could bring $5,000, then $4,850 and $4,650, while above $5,200 opens $5,400-$5,500; RSI is near 43 and MACD sits just below zero. The current consolidation of gold around the $5,100 level presents a complex picture for us. While geopolitical tensions from the ongoing US-Iran conflict provide a floor of safe-haven support, the resulting surge in oil prices is creating significant headwinds. This dynamic is pinning the metal within a tight range, as inflation fears boost the US Dollar and Treasury yields.

Options Positioning Considerations

We see the market’s reaction to last year’s stagflation concerns as a critical factor moving forward. The surprisingly weak Nonfarm Payrolls report from February 2025, which showed a loss of 92,000 jobs, is still weighing on sentiment, especially as recent inflation data proves sticky. For example, the latest Consumer Price Index (CPI) reading for January 2026 showed headline inflation at 2.9%, still stubbornly above the Federal Reserve’s target. This situation makes it difficult for the Fed to consider easing policy, which is why rate cut expectations have been pushed out. We’ve seen this play out before; looking back at the 2022-2023 period, gold struggled to sustain rallies as long as the Fed was committed to a hawkish, anti-inflationary stance. This historical context suggests that any significant upside for gold is capped until there is a clear pivot from the central bank. For the coming weeks, the defined range between $5,000 and $5,200 is the most likely playground. This makes selling volatility an attractive strategy, such as setting up an iron condor with strikes placed outside this expected range to collect premium. However, implied volatility remains elevated due to the geopolitical risks, so positions must be managed carefully. Given the potential for a sharp move on any new developments, either from the conflict or upcoming US inflation data, holding long volatility positions is also a prudent hedge. Buying a straddle or strangle could profit from a significant price breakout, regardless of the direction. This strategy is particularly relevant ahead of the February CPI release, which could easily force a break of the current technical boundaries. We are closely monitoring the key moving averages for our directional cues. The 50-period SMA around $5,189 is acting as firm resistance, and a decisive break above it could trigger a move toward $5,400. Conversely, a sustained drop below the 100-period SMA near $5,118 would signal a retest of the critical $5,000 psychological support level. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

WTI rose about 5% on Monday after jumping above $110.00 in Asian trading and reaching above $113.00, the highest since 2022, before falling back towards $93.00 and below $95.00. It still ended above last week’s close, after a roughly 36% weekly gain in WTI futures. The Strait of Hormuz has been shut since 2 March, following confirmation by the Islamic Revolutionary Guard Corps, after joint US-Israeli strikes on Iran began on 28 February. The disruption has stopped the transit of roughly 20% of global daily oil supply.

Supply Shock Drives Crude Volatility

Iraq has cut about 1.5 million barrels per day as storage fills, Kuwait has reduced output, and Saudi Arabia began cuts on Monday. Goldman Sachs said crude could reach $140.00 to $150.00 per barrel if disruption lasts beyond 30 days. US February CPI is due Wednesday after January headline inflation of 2.4% year-on-year, with higher energy costs a potential factor. EIA crude inventories are also due Wednesday, after a 3.5 million-barrel build in the prior report. WTI traded near $93.15, with support near $88.50 and resistance around $95.00, then $98.00 and $100.00. The 50-day EMA was about $66.35 and the 200-day EMA near $63.55. The massive price swing from over $113 down to $93 in a single session signals extreme volatility is now the primary market feature. Implied volatility on crude oil options has surged, with the OVX (CBOE Crude Oil Volatility Index) now trading above 70, its highest level since 2022. This makes buying outright puts or calls exceptionally expensive, demanding more sophisticated strategies to manage risk.

Options Strategy Under Elevated Volatility

The fundamental picture remains incredibly bullish given the ongoing closure of the Strait of Hormuz, which chokes off nearly 20 million barrels of daily transit. Recent reports from OPEC+ delegates suggest that the cartel’s real spare capacity is below 2 million barrels per day, making it impossible to offset the current disruption. This supply deficit is not a forecast but a current reality, which supports the idea that the path of least resistance for prices is higher. Given the high cost of options, we should consider strategies like bull call spreads to bet on further upside while defining our risk and lowering our entry cost. Waiting for a potential dip toward the technical support area around $88.50 could provide a more favorable entry point for these positions. Selling naked puts is extremely risky in this environment and should be avoided. We saw a similar, though less acute, energy shock in 2022 following the conflict in Ukraine, where WTI prices also briefly traded above $100. However, the current blockade of a critical global chokepoint represents a far more significant physical supply disruption than the sanctions regime we saw implemented in the past. History suggests that such direct supply removals, like those in the 1970s, can lead to a sustained period of much higher prices. The upcoming US CPI report on Wednesday is a major event risk, as the recent energy spike will undoubtedly put upward pressure on inflation. The Cleveland Fed’s Inflation Nowcasting model is already projecting the February headline number to jump above 3.0%, which could force the Federal Reserve into a more hawkish stance. This creates a potential headwind for oil prices down the line as it raises concerns about demand destruction from either high prices or higher interest rates. The plan for US naval escorts introduces a binary outcome that derivative traders must watch closely. A successful operation could temporarily ease fears and cause a sharp price drop, while any military engagement with Iranian forces would likely send crude prices soaring past the recent $113 high. This massive uncertainty makes long straddles or strangles an attractive, albeit expensive, way to trade the potential for an explosive move in either direction. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

National Bank of Canada economists expect Canada’s February Labour Force Survey to show employment rising by 10K after a decline in January. They project the unemployment rate at 6.7%, up by 0.2 percentage points. They expect the participation rate to edge up to 65.2% from 65.0%. This follows a 0.4 percentage point fall in January.

Labour Market Expectations

The January merchandise trade balance is expected to improve as exports rise and imports fall. The trade deficit is forecast to narrow to C$0.25 billion. Exports are expected to be supported by higher prices for some raw materials, including gold. Separately, manufacturing sales are forecast to drop 3.3% month on month in January. The decline in manufacturing sales is linked to falls in transportation equipment and machinery. The article notes it was produced using an AI tool and reviewed by an editor. We are seeing a familiar pattern develop when we look back at the economic forecasts from early 2025. At that time, we were anticipating a modest job gain for February but a rising unemployment rate due to more people looking for work. This dynamic of a softening labour market is intensifying today.

Market Implications For Rates

The latest Labour Force Survey data for February 2026 showed a net loss of 5,000 jobs, which was a significant miss from expectations of a small gain. This pushed the unemployment rate up to 6.9%, a full two-year high, as the participation rate climbed to 65.4%. This confirms the trend of underlying weakness that was becoming apparent this time last year. This sustained labour market cooling significantly increases the probability of a Bank of Canada rate cut within the next quarter. We are now seeing the market price in a greater than 70% chance of a 25 basis point cut by the July meeting, a sharp increase from just a month ago. Therefore, positions that benefit from falling short-term interest rates, such as buying call options on BAX futures, should be considered. Consequently, the outlook for the Canadian dollar has weakened, with rate differentials poised to favour the US dollar. The USD/CAD exchange rate has already broken above 1.37, and a move towards 1.39 now seems likely if economic data continues to disappoint. Traders should look at buying put options on the Canadian dollar to hedge or speculate on further downside. The sharp drop in manufacturing sales seen in January 2025 also serves as a cautionary tale for our equity markets today. We have just seen preliminary January 2026 manufacturing sales data point to a 2.8% contraction, led by weakness in the auto sector. Hedging broad market exposure by purchasing puts on the S&P/TSX 60 index may be a prudent strategy against a potential slowdown in corporate earnings. However, the strength in gold-linked exports noted in the 2025 forecast highlights a potential area of opportunity. With ongoing global uncertainty and the prospect of lower interest rates, gold prices have remained firm, recently trading above $2,150 per ounce. Traders could explore call options on gold mining stocks as a potential hedge against broader market weakness. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

Sterling fell against the US Dollar on Monday as risk aversion supported demand for the Greenback, linked to rising conflict involving Iran. GBP/USD was at 1.3366, down 0.28% at the time of writing. Oil prices jumped after the escalation, rising 11% and then easing back. Earlier in Monday’s Asian session, oil had gained nearly 30%.

Risk Aversion And Volatility Outlook

Given the renewed risk aversion and flight to the US Dollar, we should anticipate heightened volatility in the coming weeks. Implied volatility on GBP/USD options has likely surged, reflecting the uncertainty from the oil shock and the Iran conflict. We are seeing the CME’s GBP/USD Volatility Index (CVOL) jump from around 7.5% last week to over 10% today, its highest level in four months. For a directional view, we should consider buying GBP/USD put options to gain exposure to further downside with a defined risk. The UK’s position as a net energy importer makes the Pound particularly vulnerable to this oil price surge, especially since the latest UK inflation data from February 2026 showed a stubborn CPI at 3.4%. This contrasts with the US, which is better insulated and whose economy is performing more strongly. Looking back, this situation is a stark reversal from the sentiment we saw developing throughout 2025. Last year was characterized by a steady disinflationary trend, which led markets to price in coordinated interest rate cuts from both the Bank of England and the Federal Reserve by mid-2026. This geopolitical flare-up completely disrupts that narrative, forcing a repricing of risk across the board. The strength of the US Dollar is a key part of this trade, supported by its safe-haven status and a robust domestic economy. The most recent Non-Farm Payrolls report, released just last Friday, showed the US added a strong 245,000 jobs, keeping the Federal Reserve in a much better position to hold rates firm compared to its peers. Therefore, we should also evaluate long US Dollar positions against other energy-importing currencies, not just the Pound.

Energy Markets And Options Positioning

We must also look directly at the energy markets, as this is the source of the instability. Volatility in WTI and Brent crude futures is extreme, and using options strategies like straddles, which profit from large price movements in either direction, could be prudent. We remember well how oil futures spiked over $120 a barrel during the 2022 conflict, and the current market structure suggests traders are positioning for the possibility of similarly sharp moves. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

US shares fell on Monday after the US-Iran conflict escalated and oil rose above $100 a barrel. The DJIA was near 47,059, down 423 points (0.89%), after opening at 46,812 and hitting 46,593. The S&P 500 was down about 1.3% near 6,653 and the Nasdaq Composite fell about 1.1% to around 22,146. Futures dropped more than 2% overnight, then partly recovered, but stayed below Friday’s close.

Oil Prices Spike On Supply Disruptions

WTI reached $119 late Sunday before easing to about $101.56, while Brent was near $101.81. Saudi Arabia, Kuwait, Bahrain and the UAE announced production cuts as the Strait of Hormuz blockage halted seaborne exports and filled storage. Iraq output from three major oilfields fell 70%, from 4.3 million bpd to 1.3 million. Dow futures fell by more than 1,000 points, and S&P 500 and Nasdaq 100 futures dropped over 2%; G7 ministers are meeting on an IEA reserves release. Travel shares fell: United -6%, Delta -4.6%, Southwest -4.2%; Carnival -7%, Royal Caribbean -6%, Norwegian -6%. Norwegian has fallen seven sessions; Carnival and Norwegian are down over 20% in March; Royal Caribbean is down over 14%; the Dow Transports was set for -9% over three sessions. Defence shares rose about 1% and energy was the only S&P 500 sector up; Dow Inc rose over 4% and Chevron was one of four DJIA risers. Oil is up over 50% in March, the biggest monthly rise since April 2020.

Market Strategy And Hedging Approach

Fed pricing shows a 97% chance of no change on 17-18 March at 3.50%–3.75%, with a 3% chance of a cut, down from about 23% in mid-February. A $20 oil rise could add 0.4 points to inflation and cut GDP by 0.1%; yields rose and February NFP fell 92K. Data due: February CPI expected at 0.3% MoM (from 0.2%) and 2.4% YoY; core CPI 0.2% MoM (from 0.3%) and 2.5% YoY. Friday brings core PCE at 0.4% MoM and 3.0% YoY, Q4 GDP at 1.4%, and Michigan sentiment at 55.0 (from 56.6). The sharp drop in the market and surge in oil prices means we should anticipate continued downward pressure and high volatility. Buying put options on broad market indices like the SPY and QQQ offers a direct way to hedge or speculate on further declines. With implied volatility likely elevated, as the VIX index has jumped to 28 from a low of 15 earlier this year, consider put debit spreads to lower the entry cost of these bearish positions. We should look at sectors most damaged by high fuel costs, such as airlines and cruise lines, which are leading the market down. Stocks like United Airlines (UAL) and Carnival (CCL) are showing extreme weakness, making them candidates for buying puts or establishing bear call spreads. The Dow Jones Transportation Average’s plunge is a classic warning sign, as weakness in transports often precedes broader economic trouble. On the long side, the energy and defense sectors are clear beneficiaries of the current geopolitical climate. We can use call options on stocks like Lockheed Martin (LMT) or the Energy Select Sector SPDR Fund (XLE) to gain upside exposure. Selling cash-secured puts on these names could also be a viable strategy to collect the high premium available right now. The Federal Reserve is now in a difficult position, as the odds of a March 18th rate cut have vanished due to the inflationary shock from oil. This week’s CPI inflation report is a critical event that could reinforce the “higher for longer” rate narrative, putting more pressure on stocks. We can use options on Treasury bond ETFs like TLT to trade the expected rise in yields that would accompany a hot inflation print. We saw a similar dynamic in early 2022 when a geopolitical energy shock contributed to a year-long bear market. Looking back at 2025, we know inflation was already proving difficult to tame, with core CPI finishing the year well above 2.5%. This new oil surge, with WTI crude gaining over 50% this month alone, adds significant fuel to an already existing inflation fire and creates a risk of stagflation. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

EUR/USD recovered on Monday after starting the week with a bearish gap, as the US Dollar eased from earlier intraday highs. The pair traded near 1.1586 after hitting a low around 1.1507, while the US Dollar Index was near 99.10 after peaking around 99.70. The conflict involving the United States, Israel and Iran remained the main driver of market sentiment as it entered its tenth day, with no clear de-escalation. Disruption risks to oil flows through the Strait of Hormuz added to caution and FX volatility.

Oil Prices Change The Inflation Outlook

Higher oil prices revived inflation concerns and led markets to reassess central bank paths. Europe’s net energy imports raised concerns that higher oil could lift inflation and weigh on growth, and markets priced up to two 25-basis-point ECB rate rises this year instead of steady rates through 2026. In the US, expectations for Federal Reserve rate cuts were reduced as oil prices added to inflation pressure. Stagflation risks were also noted after a weaker-than-expected Nonfarm Payrolls report showed job losses and a higher unemployment rate. With a light Eurozone calendar, focus turns to US inflation data: CPI on Wednesday and PCE on Friday. The immediate focus is on heightened volatility driven by the conflict and the resulting oil surge. With Brent crude futures pushing past $115 a barrel, this repricing of energy risk is creating large swings in currency markets. This situation is complicated by disruptions to the Strait of Hormuz, a chokepoint responsible for about 21% of global petroleum consumption, making any supply news a major market mover.

Central Banks Face A Higher For Longer Test

We should be prepared for the European Central Bank to adopt a more hawkish stance, even with a slowing economy. Europe’s dependence on energy imports means this oil shock directly translates to higher inflation, a situation we saw play out after 2022. As of late February 2026, Eurozone inflation was already proving sticky at 2.8%, making it very difficult for the ECB to ignore the new price pressures. Across the Atlantic, expectations for Federal Reserve rate cuts are evaporating. The Fed was already struggling with the last mile of inflation, with the most recent CPI data for February 2026 coming in hotter than expected at 3.2%. This oil surge reinforces the “higher for longer” narrative, and we are now seeing the derivatives market price out virtually all cuts that were expected just a month ago. This environment is ideal for options traders who anticipate large price moves but are uncertain of the direction for EUR/USD. The dual stagflation risks in both Europe and the US create a messy outlook, which is pushing implied volatility higher. Strategies that profit from a significant price move, such as long straddles or strangles, should be considered to capitalize on the uncertainty. We only have to look back to the energy crisis of 2022 for a recent historical parallel. Back then, soaring natural gas prices forced the ECB into a rapid hiking cycle despite widespread recession fears, causing significant turbulence in EUR pairs. The market is now anticipating a similar playbook, where central banks must choose to fight inflation at the expense of economic growth. All eyes will now be on this week’s US inflation data, especially the CPI report. A stronger-than-expected number will likely cement the Fed’s hawkish position and could strengthen the US Dollar due to its safe-haven status and interest rate advantage. Conversely, a surprise slowdown in inflation would create significant confusion for the Fed, potentially leading to even more market volatility. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

GBP/USD fell on Monday as demand for the US Dollar rose during a risk-off move linked to the Iran conflict. The pair traded at 1.3366, down 0.28%, while oil rose 11% after easing from a near 30% jump in the Asian session. Most G8 currencies weakened versus the Dollar, with the US Dollar Index up over 0.34%. The DXY was at 99.20 after hitting 99.69, a near three-month high last seen in late November 2025.

Oil Supply Disruption

Oil moves were tied to ships being unable to pass through the Strait of Hormuz and to output changes in Iraq, Kuwait and the United Arab Emirates. G7 finance ministers are set to discuss releasing petroleum from reserves, the Financial Times reported. The New York Fed Survey of Consumer Expectations showed one-year inflation expectations at 3% in February, down from 3.1% in January. Three-year and five-year expectations were both at 3%. UK data was absent, with focus on BRC Retail Sales for February, plus Industrial Production, GDP and a speech by Bank of England Governor Andrew Bailey. US releases include jobs, Existing Home Sales, Building Permits, Housing Starts, consumer inflation and Core PCE. On charts, GBP/USD sat near 1.3392 around clustered 50/100/200-day SMAs between 1.3530 and 1.3400, with resistance near 1.3450. Support levels include 1.3360, 1.3300 and 1.3200, while a sentiment index fell from above 123 to near 109.

Derivative Trading Ideas

Given the escalation of the Iran conflict and the resulting flight to safety, we see the US Dollar strengthening significantly. Derivative traders should consider positioning for further downside in GBP/USD, potentially by purchasing put options. This strategy offers a defined risk while capitalizing on the current risk-averse environment which favors the greenback. This safe-haven flow into the dollar is a well-established pattern we saw during the onset of the Ukraine conflict in early 2022. In the months following that event, the US Dollar Index (DXY) rallied from around 96 to over 103 as global uncertainty peaked. A similar dynamic appears to be unfolding now, suggesting the dollar’s strength has room to run. The sheer uncertainty of the situation, with risks of both escalation and sudden de-escalation, is causing a surge in expected price swings. We should therefore look at long volatility strategies, such as buying straddles on GBP/USD. This allows a trader to profit from a large price move in either direction, which is ideal when the geopolitical outcome is binary. Historically, geopolitical crises cause a spike in implied volatility, making such strategies profitable. During the 2022 Ukraine invasion, the Cboe Volatility Index (VIX) jumped over 30%, and we expect to see a similar reaction in currency volatility measures now. This makes the current premium paid for options a potentially wise investment in expected turmoil. As the conflict is directly impacting oil transit through the Strait of Hormuz, a direct play on crude oil is warranted. Buying call options on WTI or Brent crude futures is a straightforward way to speculate on further supply disruptions. The initial 11% jump in oil prices suggests the market is extremely sensitive to this chokepoint. We can look back to the 1990 Gulf War for a precedent, when crude oil prices more than doubled in just a few months following the disruption in the Middle East. That historical event shows how quickly energy markets can reprice, suggesting that long positions in oil derivatives could yield significant returns if the current conflict persists. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account