The US Dollar Index (DXY) held near 99.80, close to last week’s 100 peak, as markets watched the Iran conflict and a US deadline set for 8:00pm EST linked to the Strait of Hormuz. Tehran rejected a temporary ceasefire, closed communication channels with the US, and set conditions for any lasting deal.
US February core capital goods orders rose 0.6%, while headline durable goods orders fell 1.4%. Focus is also on upcoming FOMC minutes and PCE inflation data.
Key Moves Across Major FX Pairs
EUR/USD jumped towards 1.1580 as expectations grew that the ECB may tighten policy if higher oil prices feed into inflation. GBP/USD moved up to about 1.3270, with the pound near a more than four-month low against the dollar amid concern about imported energy and fiscal constraints.
USD/JPY was near 159.80 as Japan monitored oil-driven volatility, while the 10-year JGB yield rose to a 27-year high of 2.43%. AUD/USD traded around 0.6960, supported by recent RBA policy signals.
WTI rose to about $117 per barrel then fell to $113.40, with some physical grades near $150 and about 12 million barrels per day disrupted. Gold traded near $4,680, with China extending its gold-buying streak to 17 months.
The diary includes RBNZ, EU retail sales, an ECB meeting, and US FOMC minutes (8 April), then US PCE, GDP, and jobs data (9 April), followed by US CPI and other releases (10 April). WTI is a US crude benchmark traded via Cushing; prices are driven by supply and demand, geopolitics, OPEC quotas, US dollar moves, and inventory reports from API and EIA, which match within 1% about 75% of the time.
Looking back, the geopolitical panic surrounding the Strait of Hormuz in April 2025 was the key driver. We saw WTI crude oil spike above $117 per barrel, but that premium has since vanished as diplomatic channels reopened later that year. Now, with WTI trading around a more stable $82 per barrel, the extreme backwardation in the futures curve has normalized, making long-dated call options less expensive.
Macro Backdrop And Strategy Implications
That oil shock a year ago caused a significant inflation scare, which is why the ECB and Fed were signaling aggressive policy tightening. However, as energy prices cooled in the second half of 2025, inflation has followed, with the latest US CPI data for March 2026 coming in at a manageable 2.8%. This has completely altered the landscape, with fed funds futures now pricing in a 75% chance of a rate cut by the fourth quarter of this year.
The strong US Dollar Index, which pushed 100 during the 2025 crisis, has retreated significantly on the back of these changing rate expectations. We are now seeing the DXY hover near 95, a sharp reversal driven by the market’s belief that the Federal Reserve’s tightening cycle is firmly in the rearview mirror. This sustained dollar weakness should be a core assumption in our strategies for the coming weeks.
This environment favors being long EUR/USD, even though the ECB has also softened its stance. The pair has moved decisively from the 1.1580 area seen last year to challenge the 1.18 level, primarily on dollar weakness rather than euro strength. For GBP/USD, the pound’s recovery from its four-month lows in early 2025 has been pronounced, as its acute vulnerability to imported energy costs has turned into a tailwind.
We should also consider that the pressure on the Japanese Yen has eased considerably. Last year, USD/JPY was threatening 160, but with US yields having peaked and the rate differential set to narrow, the pair has fallen back toward 151. This suggests puts on USD/JPY or other bearish derivative structures could be profitable as the policy divergence between the Fed and the Bank of Japan shrinks.
Gold has been a major beneficiary of this regime change. While it struggled to rally past $4,680 last year due to the strong dollar, bullion recently broke to new highs near $5,100. Given the backdrop of a weaker dollar and impending rate cuts, buying call options on gold futures appears to be a sound strategy to capture further upside.
