Oil Volatility And Geopolitical Risk
US February CPI rose 0.3% month on month, matching expectations and up from 0.2% in January. Inflation remained above the Fed’s 2% target, supporting a cautious policy stance. The US Dollar Index traded near 99.20, recovering earlier weekly losses. The dollar’s strongest move was against the Japanese yen. EUR/USD traded near 1.1570 after giving up earlier gains. GBP/USD traded near 1.3410 and was little changed in the US session. USD/JPY traded near 156.90, close to a one-month high, alongside higher US Treasury yields. USD/CAD traded near 1.3590 ahead of Canada’s February jobs data on Friday and February CPI next Monday, before a BoC decision next Wednesday.Dollar Strength And Rate Differentials
Gold traded at $5,167 and was down on the day. Key releases include UK January industrial production, US housing data and jobless claims on 12 March, and UK January GDP plus US PCE, GDP and Michigan data on 13 March. Looking back at the Iran conflict in March 2025, we saw oil volatility drive markets as WTI crude approached $90. One year later, tensions in the Strait of Hormuz remain a key risk, and any escalation could trigger a similar flight to safety. Derivative traders should consider using options to hedge against sudden spikes in oil, as OPEC+ has already shown a willingness to manage supply tightly, with their January 2026 production cut of 1 million barrels per day keeping WTI firm above $82. The US inflation data from February 2025 reinforced the Federal Reserve’s cautious stance, a theme that has dominated the past year. We have seen inflation cool, with the latest February 2026 Consumer Price Index reading at 2.9%, but this is still well above the 2% target. Consequently, the Fed has only delivered two small rate cuts, holding the policy rate at 4.75% and supporting long-term US dollar strength. This environment means the US Dollar Index, which rallied to 99.20 during the 2025 crisis, continues to find support at higher levels, currently trading around 104.50. The dollar’s strength is now less about a pure safe-haven dash and more about its yield advantage over other major currencies. We should anticipate that any sign of global economic weakness will likely funnel more capital into the dollar, making long positions attractive. The surge in USD/JPY to nearly 157.00 last March highlighted the extreme sensitivity of the yen to US Treasury yields. That dynamic is still in play, as the interest rate gap between the US and Japan remains historically wide, even with minor policy shifts from the Bank of Japan. This makes selling yen volatility or maintaining carry trade positions a viable strategy, though we must remain vigilant for intervention. Last year’s events saw the EUR/USD drop back toward 1.15 as traders sought the dollar’s safety. Today, the euro’s weakness is more tied to sluggish Eurozone industrial production figures, which contracted by 0.5% in the last quarter of 2025. Meanwhile, USD/CAD continues to be heavily influenced by oil prices and Bank of Canada policy, which is expected to diverge further from the Fed in the coming months. Create your live VT Markets account and start trading now.
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