OCBC strategists said higher oil prices and safe-haven demand have supported the US dollar, reversing earlier expectations of a steady decline. They now expect a firmer USD in the coming months, with the DXY edging slightly lower over the next year but staying supported by resilient US growth, a steadier labour market and a Federal Reserve stance that stays restrictive for longer. They revised their FX outlook after a sharp rise in oil prices changed their earlier view, which had been based on US policy uncertainty, improving global growth and stretched valuations. They also cited the March US employment report, which came in stronger than expected, as a factor reducing the chance of further Fed easing.

Dollar Outlook Shifts

Over the past week, market mood improved on hopes of de-escalation linked to the US–Iran conflict. Brent crude fell back from early-week highs near USD119 per barrel, expectations for central bank rate rises were scaled down, and the dollar traded mixed against G10 currencies. They said that if de-escalation becomes credible, the USD may return to a mild downward path as energy risks ease and conditions improve for non-US economies and global risk assets. They added that a weaker USD later in the year is possible if oil prices drop meaningfully in 2H26, but any fall may be limited by US growth and the dollar’s safe-haven demand. The Dollar Index (DXY) is now firm above 106, a level we last saw in October 2025, which means the initial plan for a steady dollar decline this year is off the table. The recent surge in oil prices has completely shifted our view, re-establishing the US Dollar’s strength. This is a direct result of the market seeking safety amid geopolitical tensions. The strong March jobs report, which added a robust 275,000 positions, confirms the US labor market is holding up well. With core inflation remaining stubbornly above 3.5%, the Federal Reserve is unlikely to consider cutting interest rates anytime soon. This higher-for-longer stance provides a solid foundation for the dollar in the coming weeks.

Trading Focus On Volatility

For derivative traders, this environment of uncertainty suggests focusing on volatility. With Brent crude recently touching $119 a barrel, its highest point since the 2022 energy shocks, implied volatility in major currency pairs like EUR/USD will likely stay elevated. Using options strategies like straddles could be a way to trade the potential for large price swings, regardless of direction. We must watch for any credible signs of de-escalation, as sentiment can shift rapidly. We saw this last week when oil prices retreated from their peak to around $112 a barrel on mere hopes of a resolution, causing the dollar to trade mixed. A confirmed easing of tensions would likely cause a sharp, albeit perhaps temporary, reversal in the dollar’s strength. Even if oil prices fall later in the year, the dollar’s downside appears limited. The resilience of US growth, which consistently outperformed expectations throughout 2025, provides a strong economic backdrop. This suggests that selling out-of-the-money puts on the dollar could be a prudent strategy, as it benefits from both dollar strength and its limited potential to fall sharply. Create your live VT Markets account and start trading now.

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Silver (XAG/USD) traded at $73.53 per troy ounce on Monday, up 0.67% from $73.05 on Friday. The year-to-date rise is 3.45%. In other units, silver was priced at $2.36 per gram. The Gold/Silver ratio was 63.95 on Monday, down from 64.04 on Friday.

Silver Market Drivers

Silver is traded as a precious metal and has been used as a store of value and a medium of exchange. It can be bought in physical form, such as coins or bars, or traded via Exchange Traded Funds that track international prices. Price moves can be affected by geopolitical risk and recession concerns, as well as interest rates because silver does not provide a yield. The US Dollar also matters, as the metal is priced in dollars, alongside demand, mining supply and recycling rates. Silver is used in industry, including electronics and solar energy, because it has very high electrical conductivity, above copper and gold. Demand conditions in the US, China and India can influence price swings, including jewellery demand in India. Silver often moves in the same direction as gold, and the Gold/Silver ratio is used to compare their relative prices. The post was created using an automation tool. With silver trading around $73.53 an ounce, we are seeing a continuation of the upward trend from last year. This price reflects a significant move, building on the 3.45% gain already secured since the start of 2026. Derivative traders should note the sustained momentum that brought us to these levels. Given the strong uptrend, buying call options could be a prudent strategy to capture further gains while defining risk. However, with prices having already run up considerably, traders holding long positions might consider buying put options as a hedge. This would protect profits against any potential short-term reversal from these elevated levels.

Options Strategy Considerations

A primary driver for this strength is the shift in interest rate policy that began in late 2025. Following the period of higher rates we experienced back in 2024, the current lower-rate environment reduces the appeal of holding yield-bearing assets. This pivot makes non-yielding precious metals like silver more attractive for capital. The industrial demand for silver remains a powerful and supportive factor. As we see today, the aggressive global push for green energy has solidified silver’s role in solar panel and electric vehicle production. Projections we saw back in 2024 from The Silver Institute, which called for industrial demand to exceed 630 million ounces, have proven to be a lasting and fundamental support for the price. Many investors are also still influenced by the high inflation we navigated a few years ago. That experience has kept portfolio diversification and tangible assets at the front of their minds. This underlying demand acts as a solid floor for prices, cushioning them during minor pullbacks. We should pay close attention to the Gold/Silver ratio, which now stands at 63.95. This is significantly lower than the highs above 85 we saw in early 2024, indicating silver has been outperforming gold for some time. A low ratio suggests silver is no longer the bargain it once was relative to gold, so traders should watch for any signs of this trend stalling. Create your live VT Markets account and start trading now.

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OCBC strategists Sim Moh Siong and Christopher Wong report that rising oil prices and safe-haven demand have supported the US Dollar, changing earlier expectations of a steady decline. They expect the Dollar to be firmer in the coming months, with the DXY edging slightly lower over the next year while still supported by resilient US growth, a stabilising labour market, and a higher-for-longer Federal Reserve stance. They say oil’s sharp rally has shifted their near-term FX outlook towards a stronger USD, after previously expecting gradual weakness linked to US policy uncertainty, improving global growth, and stretched valuations. They also cite the March US employment report as stronger than expected, reducing the chance of further Fed easing and aligning with a hawkish repricing since the start of the US–Iran conflict.

Near Term Dollar Outlook

Over the past week, they note improved sentiment on hopes of de-escalation, with Brent falling back from early-week highs near USD119/bbl. They add that hawkish rate expectations were trimmed and the USD traded mixed against G10 peers. They state that if de-escalation becomes credible, the USD may return to a shallow depreciation trend as energy risks ease. A softer USD later in the year is linked to oil falling meaningfully in 2H26, while downside may be limited by resilient US growth and safe-haven demand. The initial 2026 playbook expecting a weaker dollar is now outdated. We have revised our view to favor USD strength in the coming months, driven by oil prices and a resilient US economy. The Dollar Index (DXY) recently touched a six-month high of 106.50, reflecting this shift in market dynamics. With tensions in the Middle East driving the market, uncertainty remains high. The recent retreat of Brent crude from its peak near $119 shows how quickly sentiment can turn on de-escalation news. For this reason, buying options to hedge against sudden reversals or to profit from expected price swings is a sensible approach.

Trading And Hedging Implications

The strong March employment report, which showed the US added 295,000 jobs while unemployment held at a low 3.7%, supports a hawkish Federal Reserve. This has significantly reduced the probability of rate cuts priced into futures markets for the second half of the year. We should therefore consider interest rate derivatives that bet on the Fed holding rates steady through the summer. Oil remains the primary catalyst for the dollar’s path, so we should structure trades around energy prices. While Brent crude has eased to around $114 per barrel, its high price continues to weigh on energy-importing economies like Japan and Europe. This makes shorting the EUR/USD or buying USD/JPY call options attractive as long as the energy shock persists. Even if de-escalation occurs and oil prices fall later this year, the dollar’s downside appears limited. US GDP growth is currently tracking at an annualized 2.1%, significantly outpacing the Eurozone’s 0.5%, a pattern we also observed for much of 2025. This economic resilience suggests selling out-of-the-money puts on the DXY to collect premium is a viable strategy, betting that any weakness will be shallow. Create your live VT Markets account and start trading now.

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Silver (XAG/USD) rebounded after earlier losses and traded at about $73.30 per troy ounce in European hours on Monday, after nearing $73.50. Support came as markets weighed softer expectations for tougher US Federal Reserve policy and reports of possible Middle East ceasefire talks. The US and Iran received a proposed two-step plan, with an immediate ceasefire followed by a wider agreement. Pakistan’s army chief, Asim Munir, has reportedly been in contact with US Vice President JD Vance, envoy Steve Witkoff, and Iranian Foreign Minister Abbas Araghchi. Iran said it would not reopen the Strait of Hormuz under a temporary ceasefire plan, according to Reuters. Bloomberg, citing Axios, reported talks on a possible 45-day ceasefire after US President Donald Trump warned he would bring “hell” to Tehran if no deal is reached. Oil prices fell on the talk reports, which eased near-term inflation worries. Markets still see the Fed possibly delaying rate cuts and keeping the option of higher borrowing costs later this year if inflation stays elevated, with attention on upcoming Federal Open Market Committee meeting minutes. Given the current silver price of around $73.50, we see a market pulled in two directions, creating significant potential for volatility. The prospect of a Middle East ceasefire is putting downward pressure on prices, while stubbornly high inflation figures keep the Federal Reserve in a hawkish stance. The most recent Consumer Price Index (CPI) report for March 2026 showed inflation at a persistent 3.7%, suggesting the Fed’s fight is not over. For traders, this uncertainty makes outright directional bets risky, pointing towards strategies that profit from price swings. We should consider using options to trade the expected volatility, such as purchasing straddles or strangles that would benefit from a large price move in either direction. Implied volatility on silver options has already climbed by 8% in the last month, reflecting this market tension. The main trigger for a sharp downturn would be a confirmed US-Iran ceasefire agreement, which seems to hinge on the reopening of the Strait of Hormuz. We saw a similar pattern in late 2025 when initial de-escalation rumors caused a swift 10% drop in silver prices before they recovered. Therefore, buying puts or establishing bear put spreads could serve as a tactical play on a successful diplomatic outcome. However, a fundamental floor for silver’s price is being provided by strong industrial demand, which should not be overlooked. Global solar panel installations for the first quarter of 2026 are up 18% year-over-year, and this sector is a major consumer of silver. Any geopolitically driven price dips could be viewed as opportunities to enter long positions through call options for the second half of the year. Finally, we must look at the Gold/Silver ratio, which is currently sitting near 60, a historically low level. Looking back at the market data from 2024 and 2025, the ratio spent most of its time between 75 and 85. This suggests silver is currently very expensive relative to gold, and a pairs trade, shorting silver futures while going long gold futures, could be a prudent strategy to bet on the ratio returning to its historical average.

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NZD/USD reduced earlier losses and moved back to 0.5720 as market mood improved during a quiet Easter Monday session with many markets closed. The rebound followed a dip to a four-month low near 0.5680, while the wider downtrend remained in place. Reports said talks on a peace deal involving Iran were still under way, and a Reuters report stated Iran and the US had received a framework to end hostilities immediately. This raised the prospect of the Strait of Hormuz reopening and coincided with reduced safe-haven demand for the US Dollar.

Near Term Technical Picture

Near-term technical bias stayed negative, but price action pointed to fading bearish momentum in what was described as an ending wedge. NZD/USD has fallen more than 6% since late January. On the 4-hour chart, the RSI showed bullish divergence and moved towards the 50 level. The MACD line was trying to cross above the Signal line, with the histogram above zero. Resistance levels were cited at 0.5740, 0.5753, and near 0.5780. Support levels were listed near 0.5680 and around 0.5660. We recall a similar environment around this time last year, in April 2025, when the NZD/USD pair showed signs of bottoming out near 0.5700. Bearish pressure was easing back then due to hopes of a peace deal in Iran, which weakened the safe-haven dollar. The technicals at the time, like a bullish divergence, also hinted that a recovery was possible.

Policy Divergence And Market Implications

Fast forward to today, April 6, 2026, and the fundamental picture is becoming more supportive for the Kiwi, though for different reasons. The key driver now is the growing policy divergence between a hawkish Reserve Bank of New Zealand and a Federal Reserve that is leaning more dovish. This central bank contrast is creating a floor for the pair, which is currently trading around 0.6150. Recent data reinforces this view, making the case for Kiwi strength more credible. New Zealand’s latest quarterly inflation report surprised to the upside at 4.2%, while last week’s US jobs report showed a softer-than-expected gain of 195,000 jobs, missing the consensus forecast. This economic data makes it harder for the RBNZ to consider cutting rates while giving the Fed more room to do so. For derivative traders, this suggests that implied volatility on NZD/USD might be underpriced, especially for upside moves. Considering strategies like buying call options or call spreads could be a cost-effective way to position for a potential grind higher in the coming weeks. These positions would benefit if the pair breaks above recent resistance and targets the 0.6300 handle. Looking at positioning, we can see that speculative net short positions in the NZD have been steadily decreasing since February, according to the latest CFTC reports. This mirrors the sentiment shift we saw in 2025, where the unwind of bearish bets preceded a significant rally. The current environment suggests a similar dynamic could be building. Create your live VT Markets account and start trading now.

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Silver traded near $73.30–$73.50 per troy ounce in European hours on Monday after rebounding from earlier losses. Support came as markets reduced expectations for a more hawkish Federal Reserve stance amid reports of possible Middle East ceasefire talks, which also weighed on oil prices and eased inflation worries. The United States and Iran received a two-step proposal: an immediate ceasefire followed by a wider agreement. Pakistan’s army chief Asim Munir was reported to be in ongoing contact with US Vice President JD Vance, envoy Steve Witkoff, and Iranian Foreign Minister Abbas Araghchi, while Tehran said it would not reopen the Strait of Hormuz under a temporary ceasefire.

Ceasefire Talks And Fed Expectations

Bloomberg, citing Axios, reported discussions of a 45-day ceasefire involving the US, Iran, and regional mediators. This followed US President Donald Trump’s warning that he would bring “hell” to Tehran if no deal is reached. Markets still price in delayed Fed rate cuts, with the chance of higher borrowing costs later this year if inflation stays persistently elevated. Traders are awaiting the latest Federal Open Market Committee meeting minutes for added policy guidance. Looking back to 2025, we saw silver prices surge to near $73.50, largely driven by intense geopolitical fears and concerns over a hawkish Federal Reserve. Today, with the XAG/USD price consolidating around a more stable $34.75, the landscape has clearly shifted away from that crisis-driven peak. The partial easing of Middle East tensions following the 2025 ceasefire talks has significantly reduced silver’s appeal as a primary safe-haven asset. The debate over the Fed’s policy, which dominated last year, has also evolved considerably. While in 2025 the market feared persistent inflation could lead to rate hikes, recent data shows US inflation has cooled to a more manageable 2.9% year-over-year as of the March 2026 CPI report. Consequently, derivative traders should now be positioning for a more dovish Fed, with strategies that could benefit from potential rate cuts later this year, a stark contrast to the hawkish sentiment of the past.

Industrial Demand And Relative Value

While the geopolitical premium has faded, we must not ignore silver’s powerful industrial demand story. The push for green energy has only accelerated, with the International Energy Agency’s latest Q1 2026 report confirming that global solar panel installations in 2025 surpassed all projections, and 2026 is on track to set another record. This robust demand provides a strong fundamental floor for the price, suggesting that put options sold at lower strikes could offer attractive premium-capturing opportunities. We should also consider the Gold/Silver ratio, which provides important context. After silver’s dramatic price correction from its 2025 highs, the ratio has expanded to around 88:1, well above its 21st-century average of approximately 65:1. For traders, this indicates that silver is historically cheap compared to gold, presenting potential pair trade opportunities or a basis for long silver positions relative to gold. Create your live VT Markets account and start trading now.

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NZD/USD pared earlier losses and moved back to 0.5720 in quiet trading, with many markets shut for Easter Monday. It rebounded from four-month lows near 0.5680, while the wider downtrend remained in place. The New Zealand Dollar firmed as the US Dollar eased and risk appetite improved. Talks on a peace deal in Iran continued, and a Reuters report said Iran and the US had received a framework to end hostilities immediately, which could reopen the Strait of Hormuz.

Technical Signals Point To Stabilization

The pair has fallen more than 6% since late January, but recent price action suggests selling pressure may be fading. It is trading in what is described as an ending wedge, while the 4-hour RSI shows bullish divergence and is moving towards 50. The MACD line is trying to cross above the Signal line, with the histogram moving above zero. For a clearer corrective move, resistance levels include 0.5740, 0.5753, and the April 1 high near 0.5780. On the downside, support is seen near 0.5680 and around 0.5660. The technical section was produced with the help of an AI tool. We recall how last year, around this time in 2025, there was cautious optimism for a Kiwi rebound from the 0.5720 level. This was driven by hopes for a peace deal in Iran, which briefly eased bearish pressure. The market dynamic today, however, is significantly different.

Policy Divergence Now Drives The Pair

The NZD/USD is now trading closer to 0.6050, but the underlying drivers have shifted from geopolitical news to central bank policy divergence. The signs of recovery we saw in 2025 on technicals like the RSI have given way to a more fundamental story. This creates a new set of opportunities for us. The Reserve Bank of New Zealand is showing signs of softening its stance as inflation continues to cool, with the latest Q1 2026 data showing a drop to 3.5%. While the official cash rate remains at 5.5%, the market is now pricing in the possibility of rate cuts before the end of the year. This shift weighs on the long-term outlook for the Kiwi. In contrast, the US Federal Reserve is dealing with stickier inflation, which came in at 3.1% for March 2026. This persistence means the Fed is likely to keep interest rates higher for longer than previously expected. This growing gap between the two central banks’ policies puts downward pressure on the NZD/USD pair. Given this divergence, we see an opportunity in positioning for a weaker Kiwi against the Dollar in the coming weeks. Buying NZD/USD put options with a strike price around 0.5950 could be a prudent strategy. This allows us to profit from a potential decline while limiting our maximum risk to the premium paid. Implied volatility in the pair has been moderate, making options relatively inexpensive at these levels. We should watch for the next RBNZ statement and the upcoming US employment data. Any confirmation of a dovish pivot from New Zealand or continued strength in the US economy would validate this bearish outlook. Create your live VT Markets account and start trading now.

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Pound Sterling rose 0.45% to near 1.3255 against the US Dollar on Monday during European trading. The move followed Iran saying it is reviewing a US ceasefire proposal, which supported a risk-on mood. Safer assets fell out of favour as appetite for riskier assets improved. The US Dollar Index (DXY) dropped 0.35% to near 99.85, after trading slightly higher in Asian hours.

Risk On Sentiment Builds

Iran said it received the ceasefire proposal via Pakistan, but said it would not accept deadlines or pressure. It also dismissed reopening the Strait of Hormuz in exchange for a “temporary ceasefire”. A Reuters report earlier said the two countries were discussing a two-tier agreement. The report said it included plans to end hostilities by Monday. In the UK, attention is on whether the Bank of England will raise interest rates in coming meetings amid the Middle East conflict. Last week, BoE Governor Andrew Bailey told Reuters policy action could be warranted if an oil price shock becomes a key factor, and warned prolonged energy shocks could weigh on growth. In the US, markets are waiting for the ISM Services PMI for March at 14:00 GMT. Forecasts put it at 55.0, down from 56.1 in February. We are seeing a classic risk-on move driven by hopes of de-escalation in the Middle East, with the Pound gaining against a weaker US Dollar. The potential for an Iran-US ceasefire is encouraging traders to move away from the safety of the dollar for now. This sentiment shift suggests selling overpriced, near-term volatility on currency pairs like GBP/USD might be a prudent strategy.

Options And Volatility Outlook

Options traders should note that one-month implied volatility for Cable has dropped from over 9% to 7.8% in the last 48 hours on this news. Given the pattern, we could see further compression if diplomatic channels remain open, making short vega positions attractive. However, any headline suggesting the talks have failed would cause a sharp reversal. The situation remains complex because of energy prices, which directly impact the Bank of England’s thinking. With Brent crude still trading stubbornly above $90 a barrel, last week’s hawkish comments from Governor Bailey about tackling energy-driven inflation still resonate. This underlying inflation risk provides a floor for the Pound, even as geopolitical tensions ease. This is a different story than in the US, where the latest core PCE inflation data came in at a more manageable 2.6% year-over-year. This divergence gives the Federal Reserve more flexibility than the BoE, which remains cornered by high energy import costs. This fundamental difference will likely drive currency pair movements long after the current geopolitical news fades. When we look back at the market reaction to the Red Sea shipping disruptions in late 2025, we saw a similar dynamic play out. The initial dollar rally on risk-off sentiment quickly faded as markets priced in the inflationary consequences for Europe and the UK. History suggests the second-order effects on monetary policy are more important than the initial knee-jerk reaction. Looking ahead, the key data point will be this Friday’s US jobs report, followed by the CPI inflation release next week. A strong jobs number combined with sticky inflation could quickly reverse the dollar’s recent weakness and test the Pound’s newfound strength. Therefore, holding long dollar calls as a portfolio hedge could be a cost-effective way to protect against a shift in market focus back to US economic strength. Create your live VT Markets account and start trading now.

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USD/CAD fell to around 1.3920 in European trading on Monday as the US Dollar eased amid improved market mood linked to talks on a Middle East ceasefire. Reuters reported that the US and Iran have received a proposed framework to end hostilities, with a two-step plan for an immediate ceasefire followed by a wider agreement. Pakistan’s army chief, Field Marshal Asim Munir, has reportedly been in continuous contact with US Vice President JD Vance, special envoy Steve Witkoff, and Iranian Foreign Minister Abbas Araghchi.

Ceasefire Framework And Market Impact

Tehran said it would not reopen the Strait of Hormuz under a temporary ceasefire arrangement. Iranian media also reported that officials are working on plans to impose a toll on tankers leaving the Persian Gulf. The fall in USD/CAD was limited as the Canadian Dollar faced pressure from softer oil prices. Bloomberg cited an Axios report saying the US, Iran, and regional mediators are discussing terms for a potential 45-day ceasefire, after US President Donald Trump threatened to rain “hell” on Tehran if it did not make a deal. Lower oil prices reduced concern about an energy-driven rise in inflation and the chance the Bank of Canada keeps rates restrictive for longer. The current ceasefire talks between the US and Iran create a complex setup for the Canadian dollar. While a weaker US dollar is pushing USD/CAD lower towards 1.3900, the corresponding drop in oil prices is capping the loonie’s strength. This divergence means we should prepare for significant price swings in the coming weeks.

Options Positioning And Volatility Signals

Given the binary outcome of these negotiations, we are seeing a notable increase in demand for options. One-month implied volatility on USD/CAD has already jumped to 9.5%, a sharp rise from the calmer conditions we saw in February and March of this year. This suggests positioning for a large move, regardless of the direction, through straddles or strangles could be a prudent strategy. The connection between crude oil and the Canadian dollar cannot be ignored, even with the current focus on the greenback. With WTI crude breaking below $80 a barrel on this news, we must recall how the CAD struggled in 2025 when oil prices corrected sharply. A sustained dip in energy could quickly erase any gains the loonie makes from broad US dollar weakness. These geopolitical shifts are directly influencing monetary policy expectations for the Bank of Canada. Overnight index swaps now imply only a 20% probability of a rate hike at the BoC’s next meeting, a significant drop from the 50% chance priced in just last week. This dovish repricing could act as another headwind for the Canadian dollar if the ceasefire holds and inflation fears subside. We must also position for the risk of these talks collapsing, which could happen suddenly. Looking back at the Hormuz escalation in late 2025, we saw how quickly risk aversion can drive funds back into the US dollar safety trade. Buying cheap, out-of-the-money USD calls could serve as an effective hedge against a rapid snap-back in the currency pair. Create your live VT Markets account and start trading now.

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Pound Sterling rose 0.45% against the US Dollar on Monday, reaching about 1.3255 in European trading. The move followed Iran saying it is reviewing a US ceasefire proposal, which supported a risk-on mood. Demand for safe-haven assets fell as market sentiment improved. The US Dollar Index (DXY) was down 0.35% near 99.85, after trading slightly higher earlier in Asian hours.

Ceasefire Proposal And Market Reaction

Iran said it received the ceasefire proposal through Pakistan but stated it would not accept terms set by deadlines or pressure. Tehran also rejected reopening the Strait of Hormuz in exchange for a “temporary ceasefire”. A Reuters report earlier said the two sides were discussing a two-tier deal, with plans to end hostilities by Monday. In the UK, attention is on whether the Bank of England could raise interest rates in coming meetings amid the Middle East conflict. BoE Governor Andrew Bailey said policy action may be needed if an oil price shock becomes a key factor, and warned that a prolonged energy shock could weigh on growth. In the US, markets await the ISM Services PMI for March at 14:00 GMT, expected at 55.0 versus 56.1 in February. We recall this period in April 2025 when hopes for a Middle East ceasefire briefly lifted the pound against the dollar. That optimism was short-lived, as the talks faltered later that year, leading to a sustained period of geopolitical tension. The risk-on sentiment we saw then quickly evaporated, reminding us how sensitive currency markets are to these events. The Bank of England’s concerns about an oil price shock proved to be well-founded. Following the breakdown of talks in mid-2025, Brent crude prices surged, averaging over $98 a barrel in the fourth quarter of last year. In response, the Bank of England hiked its interest rate twice, bringing it to 5.75% by November 2025 to combat the resulting inflation.

Rate Expectations And Volatility Outlook

This hawkish stance has had a lasting impact on the market’s expectations for this year. UK inflation remains stubbornly high, with the latest report for February 2026 showing CPI at 3.9%, keeping the pressure on the central bank. Consequently, derivatives markets are pricing in only a 25% probability of a rate cut before 2027, a significant shift from the sentiment a year ago. For traders, this suggests that volatility in the pound may remain elevated. One-month implied volatility for GBP/USD options has been trading in a higher range, around 9.0%, compared to the 6.5% levels seen in early 2025. This indicates that strategies protecting against sudden price swings, such as buying straddles, could be prudent. The US dollar’s position has also changed from what we saw last year. While the US ISM Services PMI did dip in March 2025, recent data shows the US economy has been more resilient, with Q1 2026 GDP growth coming in at 2.1%. This economic strength means the dollar is less likely to weaken significantly, creating a potential cap on any major rally in the GBP/USD pair. Create your live VT Markets account and start trading now.

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