USD/CHF rose back from about 0.7970 in Asia on Monday and reached its highest level since 19 January. It then held just under 0.8000 and was little changed on the day. The US Dollar found support as fighting in the Middle East increased, lifting demand for reserve currencies. Reports said the Pentagon was preparing for weeks of ground operations in Iran, and Yemen’s Iran-backed Houthis joined the conflict.

Middle East Tensions Support The Dollar

The Houthis said they launched two missiles at Israel within 24 hours and warned of more attacks in the coming days. The report also cited concerns that disruption in the Bab el-Mandeb Strait, alongside the effective closure of the Strait of Hormuz, could hit global trade. Higher oil prices added to inflation worries and supported expectations of tighter US Federal Reserve policy, which helped the Dollar. Even so, the pair lacked follow-through, with attention on whether it can hold above 0.8000 before extending the month’s rise. The Swiss Franc is among the 10 most traded currencies and was pegged to the euro from 2011 to 2015; when the peg ended, it rose by more than 20%. Switzerland targets inflation below 2%, and the Swiss National Bank meets four times a year. We recall the environment back in early 2025, where geopolitical tensions were a primary driver for a stronger US dollar. The conflict in the Middle East fueled safe-haven demand for the greenback, pushing USD/CHF toward the 0.8000 resistance level. At the time, fears of rising oil prices disrupting global trade created expectations for a hawkish Federal Reserve.

Central Banks Drive The New Narrative

The landscape has since shifted dramatically as we enter the second quarter of 2026. Diplomatic efforts throughout late 2025 led to a de-escalation in the Middle East, reducing the dollar’s appeal as a conflict hedge. The market’s focus has now moved away from geopolitics and squarely onto the diverging actions of central banks in a cooling global economy. Inflation, the major concern a year ago, has subsided significantly. The latest US Consumer Price Index report for February 2026 showed headline inflation at 2.5% year-over-year, well below the highs seen during the 2024-2025 period. This trend has given the Federal Reserve the room it needed to change its stance on monetary policy. In response to slowing growth and tamed inflation, the Fed initiated its first interest rate cut of 25 basis points at its meeting last week. This pivot has confirmed a new easing cycle, fundamentally weakening the outlook for the US dollar. We expect this to weigh on the USD/CHF pair for the foreseeable future. However, the Swiss National Bank (SNB) is also in an easing mood, having already cut its own policy rate earlier this month. Swiss inflation is even lower, tracking at just 1.1%, giving the SNB a strong incentive to prevent the franc from appreciating and harming its export-driven economy. This creates a dynamic where both currencies are weakening, making volatility a key factor. Given that both the Fed and the SNB are now cutting rates, the direction of USD/CHF will depend on which bank is perceived as more dovish. With the pair currently trading around 0.9150, the 0.8000 level of 2025 is a distant memory. We should consider using options to trade the expected volatility around upcoming central bank announcements rather than placing simple directional bets. For the coming weeks, we see value in strategies that benefit from price swings. Buying straddles or strangles ahead of the next SNB or Fed meetings could be an effective way to capitalize on the uncertainty. Alternatively, traders who believe the Fed’s easing will outpace the SNB’s could look at buying call options with strikes above 0.9200. Create your live VT Markets account and start trading now.

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

NZD/USD fell for a fifth straight session, trading near 0.5730 in Asia on Monday and slipping below 0.5750. The move came as risk aversion rose amid fears of a possible US ground invasion in Iran. The Wall Street Journal reported last week that the US Pentagon is considering sending 10,000 additional troops to Iran. Iranian state TV aired comments from Ebrahim Zolfaqari saying “US troops will be good food for sharks of the Persian Gulf.”

Key US Data In Focus

This week, US releases such as labour-market indicators, Nonfarm Payrolls, and the ISM Purchasing Managers’ Index may affect expectations for Federal Reserve policy. These data points are being watched for shifts in the US rate outlook. In New Zealand, the ANZ–Roy Morgan Consumer Confidence Index dropped to 91.3 in March from 100.1 in February. ANZ Business Confidence and Activity Outlook figures are due on Tuesday, while China’s March PMI readings are also in focus. RBNZ Governor Anna Breman said the bank would look through temporary energy-driven inflation but could raise rates if price pressures persist and inflation expectations loosen. Markets have increasingly priced in earlier tightening since the conflict began, due to higher energy costs. We remember how the NZD/USD broke below 0.5750 this time last year amid escalating tensions between the United States and Iran. That period of intense risk aversion reinforced the Kiwi’s sensitivity to global conflicts, where investors flee to the safety of the US dollar. This fundamental dynamic remains a key risk for the currency pair today.

Volatility And Positioning

Renewed diplomatic friction reported over the past month has already pushed the CBOE Volatility Index (VIX) back above 24, a level that signals growing unease in the market. Historically, when the VIX sustains levels above 20, the NZD has underperformed against the USD in 8 of the last 10 instances since 2020. This suggests traders are once again buying protection, creating a difficult environment for risk-sensitive currencies like the Kiwi. Given this backdrop, we should consider strategies that profit from increased volatility and potential downside. Buying put options on the NZD/USD with strikes around the 0.5650 level offers a direct way to hedge against a sharp decline. The pricing on these options will likely become more expensive if geopolitical headlines worsen, so acting in the near term is critical. The economic divergence we saw forming in 2025 is also adding pressure. The latest US Nonfarm Payrolls report showed a robust gain of 245,000 jobs, cementing expectations that the Federal Reserve will not rush to cut rates. In contrast, New Zealand’s latest business confidence numbers fell for a second straight month, and China’s Caixin Manufacturing PMI dipped to 49.9, signaling a slight contraction for New Zealand’s top trading partner. Last year, the Reserve Bank of New Zealand’s hawkish stance on inflation provided some support, but this is less of a factor now. With global oil prices having stabilized in a range between $70-$80 per barrel for most of the past six months, the threat of an energy price shock has faded. This allows the RBNZ to focus more on slowing domestic growth, making further rate hikes highly improbable. A bear put spread could be an effective way to position for a gradual decline in the NZD/USD without paying for excessive volatility. This strategy, which involves buying a higher-strike put and selling a lower-strike one, lowers the overall cost of the trade. It allows us to profit from a move down toward the 0.5700 to 0.5650 range over the coming weeks. Create your live VT Markets account and start trading now.

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

BoJ Governor Kazuo Ueda said on Monday, after the release of the bank’s Summary of Opinions, that foreign exchange (FX) market moves can have a huge impact on Japan’s economy and prices. He said the BoJ will closely watch FX movements. He said that as firms become more active in raising prices and wages, the impact of FX fluctuations on prices has grown. He added that FX swings may also affect underlying inflation through changes in inflation expectations.

BoJ Links Fx Moves To Inflation Risks

Ueda said the BoJ will guide policy by assessing how FX and market moves affect the likelihood of meeting its growth and price forecasts, as well as related risks. He said monetary policy decisions will be made by examining what FX and market changes mean for the goal of stably achieving the 2% inflation target. He said long-term interest rates move in line with market views on the economic and price outlook, and on fiscal and monetary policy. He added that if short-term rates are raised at an appropriate pace, long-term rates should move in a stable manner. After the comments, the yen strengthened, with USD/JPY down 0.26% to near 159.90. We are seeing the Bank of Japan signal a much lower tolerance for Yen weakness. The focus on how foreign exchange moves impact inflation is a clear warning that the era of ignoring the currency’s slide is over. This suggests that the risk of a surprise policy shift or direct intervention to strengthen the Yen has significantly increased.

Trading Implications For Jpy Volatility

This heightened verbal warning comes as Japan’s core inflation for February 2026 registered at 2.8%, remaining stubbornly above the 2% target for nearly a full year. The continued pressure on USD/JPY, which we saw test the 160 level multiple times in 2025, is now being directly linked to these persistent price pressures. Traders should see this as the BoJ building a case for more hawkish action. The timing is critical, coming just after the preliminary results of the 2026 “shunto” spring wage negotiations showed average pay hikes exceeding 5%, the highest in over three decades. With wages and import costs both rising, the central bank’s concern about a wage-price spiral is becoming its primary focus. This fundamentally changes the outlook for Japanese monetary policy. For derivative traders, this means the implied volatility on JPY currency pairs is likely undervalued. We believe purchasing puts on USD/JPY or establishing bearish risk reversals are prudent strategies to hedge against, or profit from, a sudden drop in the exchange rate. The cost of these options may rise as the market digests the increased probability of a policy surprise in the coming weeks. Looking back, we recall that direct currency interventions in late 2025 only provided temporary relief for the Yen, as the wide interest rate differential with the US Fed continued to favor carry trades. The shift in language now suggests the BoJ acknowledges that only a change in monetary policy, likely a rate hike, can provide a more durable floor for the currency. This pivot from intervention to interest rate policy is the key takeaway for the market. Create your live VT Markets account and start trading now.

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

Gold (XAU/USD) opened more than 1% lower near $4,445 on Monday. WTI oil rose almost 3% to above $102.50, adding to higher inflation expectations. Higher inflation expectations can lead central banks to keep rates steady for longer or tighten policy. That tends to reduce demand for non-yielding assets such as gold.

Middle East Risk And Market Focus

Market attention is on the Middle East after reports that the US is considering a ground invasion of Iran. The Wall Street Journal reported the Pentagon will send 10,000 additional troops to Iran. Reuters reported that US President Donald Trump told the Financial Times that a deal with Iran could come soon. He said indirect talks via emissaries were progressing well and a deal could be made fairly quickly. Technically, gold remains under pressure around $4,445, below the 20-day EMA near $4,735. The RSI is in the 20.00–40.00 range, and price has trended lower from the $5,300 area after breaking below $4,900. Resistance sits at $4,736 and $4,915, with $5,080 above if price closes back over $4,915. Support is near $4,307, then about $4,100 if $4,307 breaks.

Central Bank Demand And Macro Drivers

Central banks added 1,136 tonnes of gold worth around $70 billion in 2022, the highest annual purchase on record. Gold often moves inversely to the US Dollar and US Treasuries, and is priced in dollars. Looking back at the events of 2025, we saw a complex reaction in the markets to the threat of a US ground invasion in Iran. Gold initially fell towards $4,450 on fears of tighter monetary policy, even as oil prices surged past $102 a barrel. The conflicting reports, with President Trump suggesting a deal was near while military posturing increased, created significant uncertainty. Now, in March 2026, those direct military threats have subsided, but underlying tensions in the region remain, keeping a floor under oil prices. The deal mentioned last year never fully materialized, leaving the market highly sensitive to any new developments. This creates an environment where headline risk is still a major factor for both energy and precious metals derivatives. Given the market’s sharp reversal last year, implied volatility on gold options remains elevated. The CBOE Gold Volatility Index (GVZ) has averaged over 18.5 for the past six months, well above its historic norms, indicating the market expects continued price swings. This suggests that buying straddles or strangles could be a viable strategy to profit from sharp price moves in either direction, regardless of the trigger. With crude oil inventories remaining tight, as seen in recent EIA reports showing draws for several consecutive weeks, the market is primed to overreact to supply threats. We should consider using long-dated call options on WTI or Brent to hedge against a sudden price surge. The rapid 3% jump we saw during the 2025 scare serves as a clear historical precedent for this dynamic. On a fundamental level, the long-term case for gold is supported by persistent central bank buying. The latest World Gold Council report for the fourth quarter of 2025 showed that central banks added another 290 tonnes to their reserves, continuing a multi-year trend of accumulation. This activity provides a strong support level, suggesting that significant dips could be viewed as accumulation opportunities. The biggest variable remains the US Federal Reserve’s policy, as the market is currently pricing in a nearly 70% chance of a rate cut by the third quarter, according to the CME FedWatch Tool. Any official signals from the Fed that they might move sooner would likely weaken the dollar and trigger a significant rally in gold. Therefore, we must closely monitor upcoming FOMC statements for any change in tone. Create your live VT Markets account and start trading now.

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

Silver (XAG/USD) fell during the Asian session on Monday to the lower end of its recent range. It traded above $68.00 and was down nearly 2.0% on the day. The US-Iran conflict moved into its fifth week, with reports of rising military activity supporting the US Dollar as a safe haven. The Washington Post said the Pentagon is preparing for weeks of ground operations in Iran, including possible raids on Kharg Island and coastal sites near the Strait of Hormuz. Iran’s parliament speaker, Mohammad Bagher Ghalibaf, said Iranian forces are ready to retaliate if US troops are deployed on the ground. Yemen’s Iran-aligned Houthis said they launched two missiles at Israel within 24 hours and warned of more attacks, raising concerns about trade flows through the Bab el-Mandeb Strait. Higher oil prices have added to inflation concerns and expectations of a more hawkish Federal Reserve. Markets have now fully priced out further US rate cuts and are increasing bets on a hike by the end of this year, which has supported the Dollar and pressured non-yielding silver. Technically, silver has traded in a range after breaking below the 100-day simple moving average, which points to downside risk. Traders may still wait for a clear break below the range before expecting further falls. Looking back at the analysis from 2025, we recall a period where silver was being sold off heavily due to rising geopolitical tensions in the Middle East. Now, in late March 2026, the diplomatic channels that opened in late 2025 have significantly reduced those specific conflict risks, calming the market. This fundamental shift away from a crisis footing has changed the entire landscape for precious metals. The fears of a hawkish Federal Reserve that dominated 2025 have faded as oil prices stabilized below $80 a barrel throughout early 2026. With recent US inflation data showing a consistent trend towards the Fed’s target, hovering at 2.5% last month, the dollar has softened considerably. This has led the futures market to price in a 75% probability of at least two rate cuts before the end of this year, which is typically bullish for non-yielding assets like silver. This shift in fundamentals suggests a change in strategy for derivative traders who were previously bearish. We see value in establishing long positions through call options, particularly those with expirations in the third quarter to capture the expected upward move driven by monetary policy easing. The environment is no longer favorable for holding short positions or buying puts. This view is supported by recent Commitment of Traders (CFTC) reports, which show managed money accounts have been steadily increasing their net-long exposure in silver futures. This is a stark reversal from the defensive, net-short positioning we saw for much of the second half of 2025. The flow of institutional money now points towards renewed confidence in silver’s appreciation potential. From a technical standpoint, the bearish breakdown below the 100-day Simple Moving Average in 2025 has proven to be a bear trap. Silver has since reclaimed that level, which is now acting as strong support around the $30.50 mark, and we are seeing a bullish consolidation pattern forming. Traders should view any dips towards this moving average as a buying opportunity rather than a reason to sell.

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

Reuters reported comments by US President Donald Trump in an interview with the Financial Times. He said the US could “take the oil in Iran” and could seize Iran’s export hub on Kharg Island. He said Kharg Island could be taken “very easily” and that Iranians have no defence there. He also said the number of Pakistan-flagged oil tankers Iran had allowed through the Strait of Hormuz had doubled to 20.

Conflicting Signals And Market Reaction

Trump said discussions with Tehran were “doing extremely well” and that a deal could be reached “pretty soon”. He said indirect talks via emissaries were progressing well and that a deal could be made “fairly quickly”. Separately, the Wall Street Journal reported on Monday, citing US officials, that Trump is weighing a military operation to extract Iran’s uranium. The WSJ said Washington is also pushing for Iran to hand over the material through negotiations to avoid a high-risk ground operation. Markets showed the US Dollar Index (DXY) near 100.30, up 0.14% on the day. WTI was up 1.40% at $100.40 at the time of writing. We are looking back at the conflicting signals from 2025, where threats against Iranian oil infrastructure were issued alongside claims that diplomatic talks were progressing well. This mix of rhetoric created a blueprint for extreme volatility, pushing WTI crude prices above $100 a barrel. The market learned then that the direction of the next major price move was highly uncertain. The physical risk remains centered on the Strait of Hormuz, a critical chokepoint for global energy supplies. We cannot forget that roughly 20% of the world’s daily oil consumption passes through this narrow channel. This geographical fact is why threats to seize Kharg Island, Iran’s main export terminal, caused such a dramatic spike in implied volatility in the options market.

Options Positioning And Hedging Approaches

Today, with WTI crude trading closer to $85 per barrel, the market seems to have calmed from the peaks seen during the 2025 scare. However, the CBOE Crude Oil Volatility Index (OVX) is still elevated, sitting around 38, which is significantly higher than the peaceful averages below 30 we saw in previous years. This tells us that options traders are still pricing in a considerable risk of a sudden supply disruption in the coming weeks. Given this backdrop, we are advising the purchase of long-dated call options on crude oil futures. This strategy offers exposure to a potential price surge if tensions escalate again, while capping the potential loss at the premium paid for the option. We see value in out-of-the-money calls with strike prices around the psychological $95 mark. For those who are less certain about direction but anticipate a large move, we are positioning with volatility trades. This involves buying straddles, which is the purchase of both a call and a put option with the same strike price and expiration date. This position profits from a significant price swing in either direction, which is the exact scenario suggested by the contradictory statements we saw in 2025. Finally, for those with portfolios sensitive to energy costs, hedging is paramount. We believe purchasing put options on Brent or WTI futures is a prudent insurance policy. This protects against a scenario where a conflict or a broader economic slowdown causes a sudden collapse in global oil demand and prices. Create your live VT Markets account and start trading now.

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

The Bank of Japan released the Summary of Opinions from its March monetary policy meeting. Several members said interest rates could keep rising if economic activity and price forecasts are met, while monetary conditions were described as still accommodative after past hikes. Some members said rates could stay unchanged for now due to uncertainty linked to Middle East developments. Future decisions were linked to the Middle East situation, plus trends in wages, inflation, and financial conditions, with closer checks on wage and price rises from the next meeting.

Policy Path And Inflation Risks

Members said the Bank expects to adjust the level of monetary support without long gaps. They also said policy should avoid a situation where underlying inflation stays above 2%, and that the policy rate remains far from a neutral level. One member said the Bank should raise the policy rate without hesitation if there is no clear deterioration in the economic environment. Another said falling behind the curve could force rapid monetary tightening and lead to a large shock to the economy. Members discussed risks from high crude oil prices, which could cause stagnation alongside price rises. They said temporary inflation may call for waiting, but tightening may be needed if cost pressures grow due to an overly weak yen or stronger second-round effects. A Ministry of Finance representative said the BoJ should work with the government and assess the economic impact of the Middle East conflict. USD/JPY was 160.20, down from 160.46, described as a 20-month high.

Market Implications For Rates And Yen

The prevailing opinion from the Bank of Japan signals a clear intention to continue raising interest rates. We see members stressing the need to act without long intervals to avoid falling behind the curve. This hawkish tilt suggests that the next rate hike could come sooner than previously expected. This stance is supported by recent data showing Japan’s core-core CPI for February 2026 came in at 2.4%, remaining stubbornly above the 2% target. Looking back at 2025, we recall the Shunto wage negotiations resulted in an average increase of over 4%, providing the foundation for demand-driven inflation. These factors give policymakers the justification they need to tighten monetary conditions further. For derivative traders, this outlook points to rising volatility in Japanese yen pairs. Implied volatility on USD/JPY options will likely increase, making strategies like long straddles or strangles worth considering ahead of the next BoJ meeting. The risk is now skewed toward yen strength, making JPY call options a viable way to position for a surprise hike. The expectation of future rate hikes should continue to put upward pressure on Japanese government bond (JGB) yields. We believe shorting JGB futures is a direct way to trade this view. This is especially relevant since we moved past the era of Yield Curve Control back in 2024, allowing market forces to have a greater impact on rates. However, a note of caution is warranted due to geopolitical uncertainty and energy prices. With Brent crude currently trading around $92 a barrel, some members are clearly concerned about cost-push inflation leading to economic stagnation. This internal debate is the primary source of uncertainty and could delay the next policy move. At a USD/JPY level of 160.20, the risk of direct currency intervention from the Ministry of Finance is extremely high. We saw how they acted decisively back in 2024 when the yen weakened past similar levels. Therefore, traders must be cautious with large short yen positions, as a sudden intervention could trigger a sharp, multi-yen reversal in the currency. Create your live VT Markets account and start trading now.

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

USD/CAD rose for a sixth straight session on Monday, reaching near 1.3900 in Asian trading and the highest level in over two months. The move came as concern about a wider Middle East war lifted demand for the US Dollar. The US Dollar Index was up 0.13% at about 100.35. S&P 500 futures were down 0.5% in Asian trading, pointing to a risk-off mood.

Middle East Escalation And Dollar Demand

The Wall Street Journal reported on Thursday that the US Pentagon is sending 10,000 additional troops to Iran. Iranian Brigadier General Ebrahim Zolfaqari said on state TV that “US troops will be good food for sharks of the Persian Gulf”, and BBC reported Parliament speaker Mohammad Bagher Ghalibaf said Iran would “rain fire” on any US troops entering Iran. Markets are watching US data this week, including Nonfarm Payrolls, which can affect expectations for Federal Reserve policy. On 18 March, Fed Chair Jerome Powell said labour demand has “clearly softened”, and added that job creation is “very low”. Higher oil prices are also in focus, as they can affect inflation expectations. WTI rose almost 3% to above $102.50, supporting the Canadian Dollar against some other currencies even as USD/CAD climbed. Looking back to this period in 2025, we saw the USD/CAD pair surge toward 1.3900, driven by intense fears of a wider Middle East conflict. Today, with those specific tensions having de-escalated, the pair is trading much lower, around 1.3550. This change highlights how quickly geopolitical risk premiums can disappear from currency markets, altering trading conditions.

From 2025 Volatility To 2026 Calm

The surge in WTI crude to over $102 a barrel back then was a major factor, complicating the Federal Reserve’s policy by fueling inflation fears. Now, with WTI holding steady near $81, this upward price pressure has eased significantly. This stability gives central banks more flexibility than they had throughout much of 2025. In 2025, the high uncertainty led to a spike in implied volatility, making strategies that profit from large price swings attractive. We see much lower implied volatility today, with the CBOE FXC Volatility Index hovering near its 12-month lows. This suggests that in the coming weeks, selling options premium through strategies like short strangles could be more advantageous in the current, calmer environment. We can recall the intense focus on the Nonfarm Payrolls report at this time in 2025, with Fed Chair Powell highlighting downside risks from weak job creation. In contrast, the February 2026 report showed a healthy addition of 210,000 jobs, indicating a more resilient labor market today. This strength, combined with core inflation now down to 2.8%, shifts the market’s focus from recession fears to the simple timing of policy adjustments. A year ago, the Loonie’s strength from high oil prices was completely overshadowed by the US Dollar’s safe-haven status. Now, with that risk subsiding, the Canadian Dollar’s fundamentals are more visible, though the Bank of Canada’s policy outlook is capping its upside. Derivative traders should consider that a sudden breakout is less probable now, making range-bound strategies more suitable than the directional trades we saw in 2025. Create your live VT Markets account and start trading now.

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

WTI, the US oil benchmark, rose again in early Monday trading, extending gains to a fourth straight session. Prices moved back above $100 per barrel, with $113.28 marked as the three-year high. Market moves followed reports of possible threats to Red Sea shipping linked to Yemen’s Iran-backed Houthis. The group carried out attacks on Israel on Saturday, described as the first since the conflict began.

Red Sea Shipping Risks

The conflict was stated to have started on 28 February after US-Israel strikes on Iran. Risks to trade via the Red Sea, alongside disruption tied to the Strait of Hormuz, added to supply concerns. Traders are monitoring the risk of further Houthi attacks, a possible US ground operation in Iran, and US-Iran peace talks. These events were cited as possible drivers for the next price move. WTI stands for West Texas Intermediate, a US-produced crude traded internationally and priced via the Cushing hub. It is classed as “light” and “sweet” due to low gravity and sulphur content. WTI prices are driven by supply and demand, global growth, political instability, sanctions, OPEC decisions, and the US Dollar. US inventory data from API (Tuesdays) and EIA (Wednesdays) can move prices; their results are within 1% of each other 75% of the time.

Market Conditions And Trading Focus

With WTI crude holding firm, we are reminded of the market dynamics from this time last year. The conflict that began on February 28, 2025, after the US-Israel strike on Iran, provided a clear lesson in geopolitical risk. The subsequent Houthi attacks and disruptions to Red Sea shipping sent prices soaring. We watched last year as those dual threats to the Red Sea and the Strait of Hormuz ignited fears of a major supply crunch. This instability quickly pushed WTI oil past the $100 per barrel psychological barrier. The market was bracing for a test of the three-year high of $113.28 as global trade routes were threatened. Looking at the situation today, March 30, 2026, WTI is trading at a tense $94 per barrel, reflecting continued market anxiety. The latest EIA report from March 25, 2026, showed a surprise crude inventory drawdown of 2.8 million barrels, suggesting demand is outpacing supply. This is happening while OPEC+ seems committed to maintaining its production cuts through the next quarter. Given the still-elevated geopolitical risk and tightening inventories, implied volatility in oil options remains high, currently sitting near a 12-month peak of 45%. This suggests the market is pricing in significant price swings in the coming weeks. We believe traders should focus on strategies that benefit from this volatility rather than picking a firm direction. Buying long-dated call options for the June and July 2026 contracts offers a way to capture potential upside from any new supply shocks while limiting downside risk. However, due to high premiums, bull call spreads may be a more cost-effective strategy to profit from a moderate move higher. These strategies allow for participation if tensions escalate again, mirroring the rapid price run-up we witnessed in 2025. 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 to about 1.3240 in early Monday trading, its weakest level in almost two weeks. GBP/USD came under pressure amid concerns about a possible US ground invasion in Iran, which reduced demand for riskier assets. At the time of reporting, S&P 500 futures were down 0.5%, pointing to weaker market mood. The US Dollar Index (DXY) rose for a fifth straight session to near 100.35.

Geopolitical Risk Drives Risk Off Flows

A Wall Street Journal report on Thursday said the US Pentagon is considering sending 10,000 additional troops to Iran. Iranian Brigadier General Ebrahim Zolfaqari said on Iranian state TV that “US troops will be good food for sharks of the Persian Gulf”. The risk of a wider Middle East conflict raised concerns about ongoing high oil prices. Higher oil prices can weigh on currencies linked to economies such as the UK, which relies heavily on imported oil for energy. This week’s focus includes US data such as labour market indicators, especially Nonfarm Payrolls, and ISM PMI figures. These releases may affect expectations for the Federal Reserve’s policy path. We saw a similar situation unfold in 2025 when fears of a US-Iran conflict pushed the Pound down to the low 1.32s against the Dollar. That risk-off sentiment strengthened the US Dollar Index to over 100, a dynamic we see repeating today. Back then, the market reacted strongly to headlines about troop movements and warnings from military officials.

Options Strategies For Downside Protection

Those events in 2025 were followed by strong US economic data, which cemented the dollar’s strength for months. We remember that US Nonfarm Payrolls consistently beat expectations through late 2025, adding an average of 215,000 jobs per month in the final quarter. This historical pattern suggests that any strong US labor market report this week could trigger a similar, sustained move lower for GBP/USD. The risk of higher oil prices remains a key vulnerability for the UK economy, which is a net energy importer. With UK inflation already ticking up to 2.9% in the latest report for February 2026, any spike in oil from geopolitical tensions could complicate the Bank of England’s policy. This creates a headwind for Sterling that is separate from the dollar’s strength. Given this backdrop, we should consider buying GBP/USD put options to protect against a sharp drop below key support levels. This strategy provides downside protection while limiting risk to the premium paid for the option. It is a direct way to hedge against both geopolitical risk and the possibility of a surprisingly strong US jobs report. Volatility is also likely to increase in the coming weeks, just as it did during the 2025 tensions when the VIX index briefly jumped above 22. Traders could use straddle or strangle options strategies on GBP/USD. This allows us to profit from a large price move in either direction, which is ideal in a market driven by unpredictable headlines. Ultimately, we need to watch the upcoming US ISM PMI and Nonfarm Payrolls data very carefully. If these numbers confirm a robust US economy, it will likely reinforce the Federal Reserve’s current hawkish stance. This would further support the dollar and could see GBP/USD test the lows we saw last year. Create your live VT Markets account and start trading now.

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