Currency markets have moved into a consolidation phase ahead of the April 28 War Powers Resolution deadline. USD/CNY has levelled off after an earlier relief rally.
Trading has become more cautious, with fewer firm directional positions following the rally earlier in the month. Focus has shifted to the upcoming deadline and the risk of further geopolitical shocks.
Central Banks And Geopolitical Risk
Tensions between the US and Iran are affecting the outlook for central banks, many of which meet next week. Expectations are for policy rates to stay unchanged, while officials watch for stagflation risks.
In Asia, oil-sensitive currencies such as INR, KRW and PHP are expected to keep moving with oil prices. Local authorities are likely to remain ready to deter one-way moves towards depreciation.
The article was produced using an artificial intelligence tool and reviewed by an editor.
As we approach the April 28 deadline, currency markets have entered a tense consolidation phase, which we see in the flattening of the USD/CNY exchange rate. The hesitation follows the short-lived relief rally earlier this month. Traders are clearly reluctant to make any significant directional moves until the geopolitical situation becomes clearer.
Trading Volatility Over Direction
Given this paralysis, we believe the best approach is to trade volatility rather than direction. While realized volatility is low, the J.P. Morgan Global FX Volatility Index remains elevated near 8.5%, suggesting the market is pricing in a potential shock. Using options strategies like straddles or strangles allows traders to profit from a large price swing in either direction once the deadline passes.
The complex standoff between the U.S. and Iran is also expected to keep central banks on the sidelines next week. We see in the futures market that traders are pricing in a more than 90% probability that major central banks will hold interest rates steady. This reinforces the current state of market uncertainty and the risk of stagflation.
We are paying special attention to Asian currencies that are dependent on oil imports, such as the Indian Rupee and the Korean Won. With Brent crude holding stubbornly above $95 a barrel, these currencies are exposed to sudden shocks. Buying out-of-the-money call options on pairs like USD/INR can provide a cheap and effective hedge against a spike in energy prices.
Looking back at the sharp market dislocations in 2025 that followed the escalation in trade disputes, we learned that periods of low volatility can end abruptly. That experience informs our current view to prioritize defined-risk strategies. It is wiser to pay a small premium for protection now than to be caught in a sudden, unhedged move.
