GBP/USD dipped after four days of gains, trading near 1.3430 in Asian hours on Friday. The US Dollar held firmer amid renewed risk aversion linked to uncertainty over a US-Iran ceasefire.

Traders are waiting for the US Consumer Price Inflation (CPI) report due later in the North American session. Overall sentiment stayed cautious.

Geopolitical Risks And Market Sentiment

Israel continued strikes on Hezbollah, while Benjamin Netanyahu said Israel will begin direct talks with Lebanon soon. Donald Trump said US forces will remain deployed around Iran until full compliance with the agreement.

JD Vance, Steve Witkoff, and Jared Kushner are set to meet in Pakistan this weekend about a possible long-term deal with Iran. Iran’s Esmaeil Baghaei said talks to end the war depend on the US keeping its ceasefire commitments.

Baghaei said those commitments include a ceasefire in Lebanon, which the US and Israel said was not part of the deal. Andrew Bailey warned the Iran war could trigger a 2008-style crisis tied to stress in the opaque $3 trillion (£2.2 trillion) private credit market.

Volatility Hedging And Positioning

Looking back at the geopolitical tensions of 2025, the market’s cautious sentiment from that time has created lasting effects we see today. The persistent risk aversion, fueled by last year’s US-Iran standoff and Israeli military actions, continues to drive capital towards safe-haven assets. We see this reflected in the CBOE Volatility Index (VIX), which has established a higher floor around 18, compared to the pre-2025 average of 14.

Given this elevated uncertainty, traders should consider buying protection against sudden market swings. Call options on the VIX or VIX futures are a direct way to profit from an increase in expected volatility over the next several weeks. This strategy acts as an effective hedge for long-equity portfolios that are vulnerable to geopolitical shocks.

The US Dollar’s role as a primary safe haven, which we saw strengthen during the 2025 ceasefire talks, remains a key theme. The Dollar Index (DXY) has gained nearly 3% since the start of this year, a trend we expect to continue as Mideast tensions simmer. Using derivatives to maintain a long position in the US Dollar, either through futures contracts or call options against a basket of currencies, is a prudent move.

Conversely, the British Pound appears vulnerable, a concern Governor Bailey noted last year. With UK inflation remaining stubbornly above the Bank of England’s target at 3.1% last quarter and GDP growth stalling, the GBP/USD pair is under pressure. We believe buying put options on GBP/USD offers a cheap way to position for further downside in the Pound.

The threat of energy shocks mentioned by the BoE governor in 2025 has kept inflation expectations higher for longer. This suggests the Federal Reserve may be slower to cut rates than the market currently prices in. Therefore, traders should examine interest rate derivatives, such as positioning in SOFR futures to bet on rates remaining elevated through the third quarter of 2026.

Governor Bailey’s warning about the private credit market is more relevant than ever, as the market has grown to an estimated $3.5 trillion. Credit spreads on high-yield corporate debt have widened by 50 basis points in the last two months alone, indicating rising stress. Buying credit default swap (CDS) protection on indices like the Markit CDX North American High Yield Index is a direct way to hedge against a potential credit event.

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The People’s Bank of China (PBOC) set the USD/CNY central rate for Friday at 6.8654. This compared with the previous day’s fix of 6.8649 and a Reuters estimate of 6.8313.

The PBOC’s main monetary policy aims are price stability, including exchange rate stability, and supporting economic growth. It also works on financial reforms, including opening and developing China’s financial market.

Pboc Governance And Control

The PBOC is owned by the state of the People’s Republic of China, so it is not an autonomous body. The Chinese Communist Party Committee Secretary, nominated by the Chairman of the State Council, has strong influence over its management, and Pan Gongsheng holds both that role and the governor post.

The PBOC uses tools such as a seven-day reverse repo rate, the medium-term lending facility, foreign exchange actions, and the reserve requirement ratio. The loan prime rate is China’s benchmark interest rate and affects loan, mortgage, and savings rates, as well as the Renminbi exchange rate.

China has 19 private banks. The largest include WeBank and MYbank, and fully privately funded domestic lenders were allowed to operate from 2014.

We are seeing the People’s Bank of China guide the yuan weaker against the US dollar, setting the daily fix at 6.8654. This move was notably weaker than market estimates which were closer to 6.83. This suggests a deliberate policy signal is being sent to the market.

Implications For Yuan Trading

This policy shift aligns with the challenging economic data we saw coming out of the first quarter of 2026. With exports falling by 7.5% year-on-year in March and consumer inflation remaining tepid at just 0.1%, a weaker currency is a classic tool to make Chinese goods more competitive globally. A weaker yuan helps support the manufacturing sector during a period of soft domestic demand.

This currency management is consistent with the broader easing stance we’ve observed from the central bank. We remember the significant cut to the five-year Loan Prime Rate late in 2025, which was aimed at stimulating the property market and lowering borrowing costs. Allowing the currency to depreciate is another lever they can pull when direct interest rate cuts have had limited effect.

For derivative traders, this signals that one-way bets on yuan strength are now riskier. We should anticipate increased volatility in USD/CNY options as the market digests the PBOC’s intentions. The key will be to trade the range, as the state-owned central bank will likely intervene to prevent a disorderly depreciation.

In the coming weeks, we should consider strategies that profit from either a gradual rise in USD/CNY or higher implied volatility. This could include buying offshore yuan (CNH) put options or implementing call option spreads on the USD/CNH. These positions would benefit from the managed depreciation we expect to see.

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South Korea’s central bank, the Bank of Korea (BOK), kept its policy interest rate at 2.5%. The decision matched forecasts.

The rate remains at 2.5% after the latest meeting. No change was made to the headline policy rate.

Market Pricing And Volatility Outlook

The Bank of Korea’s decision to hold its key rate at 2.5% was widely anticipated, meaning the market has already priced this in. We see this as a signal of a prolonged pause, not a pivot, removing any immediate catalyst for a major repricing in short-term rates. Consequently, implied volatility on near-term options for currency and bonds should decrease.

We are now focusing on the interest rate differential with the U.S. Federal Reserve, which is holding near 3.0%, keeping pressure on the won. With the USD/KRW exchange rate hovering around 1370, traders should consider strategies that benefit from a stable-to-weakening won, such as buying puts on the currency. We saw how this differential drove the won’s weakness throughout much of 2025, and that dynamic remains in place.

For interest rate swaps, the BOK’s neutral stance anchors the front end of the yield curve. The market is now pushing back expectations for any further rate cuts until later this year, flattening the curve. This environment suggests considering receiver swaps on longer tenors to bet on eventual easing, while the short end remains locked.

This steady rate environment removes a headwind for the KOSPI 200, but the underlying reason for the hold is key. We remember the concerns in 2025 when growth slowed after the initial semiconductor-led export recovery, a recovery which now appears to be moderating. Given this uncertainty, traders could favor range-bound strategies like selling strangles on the index, capitalizing on sideways movement.

Key Data To Watch Next

The critical data points in the coming weeks will be the next inflation and export figures. Inflation has proven sticky, rebounding to 2.8% recently after falling for most of last year. Any sign that inflation is accelerating again could force the BOK to maintain its hawkish hold, while a sharp drop in exports could reignite calls for a rate cut sooner than expected.

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EUR/USD traded lower near 1.1690 in early Asian trading on Friday, as the euro weakened against the US dollar. Trading was cautious over whether a fragile two-week ceasefire between the United States and Iran would continue.

Iran’s Foreign Ministry spokesperson Esmaeil Baghaei said on Thursday that talks to end the war depend on the US meeting ceasefire commitments. He said these include a ceasefire in Lebanon, which the US and Israel said was not part of the deal.

Middle East Ceasefire In Focus

US Vice President JD Vance and envoys Steve Witkoff and Jared Kushner are preparing for talks in Pakistan this weekend on a potential long-term deal with Iran. The two-week pause in hostilities has largely held.

Tensions in the region continued after Israeli Prime Minister Benjamin Netanyahu said Israel will “continue to strike Hezbollah with force”. Ongoing uncertainty has supported demand for the US dollar.

The US March CPI inflation report is due on Friday. Headline CPI is forecast at 3.3% year on year in March, up from 2.4% in February, linked to higher oil prices.

In Europe, the ECB has signalled possible further tightening if price pressures persist. Markets have fully priced in two rate rises and show more than a 50% chance of a third by December, according to Reuters.

Dollar Demand Versus ECB Tightening

We see the EUR/USD pair facing downward pressure due to the fragile US-Iran ceasefire, which is boosting the US Dollar as a safe haven. This geopolitical uncertainty makes traders nervous, and they are moving capital into dollar-denominated assets for safety. The situation is a classic risk-off scenario that typically weighs on pairs like the EUR/USD.

The upcoming US Consumer Price Index report is the most important event today, with expectations of a sharp rise to 3.3% year-over-year. We saw a similar pattern throughout 2022, where hotter-than-expected inflation reports consistently triggered strong dollar rallies as the market priced in a more aggressive Federal Reserve. A high number today would almost certainly reinforce this trend and push the EUR/USD lower.

Given the binary risk of the CPI data, a sensible derivatives strategy would be to buy volatility. Purchasing an at-the-money straddle, which involves buying both a call and a put option, would allow a trader to profit from a large price swing in either direction following the announcement. Implied volatility for one-week EUR/USD options has already surged to over 10%, indicating the market is bracing for a significant move.

Beyond today, the stability of the Middle East remains a key factor that will support the dollar. The tense standoff reminds us of late 2024, when similar conflicts caused oil prices to spike and the Dollar Index (DXY) to rally from 104 to over 107 in just a few weeks. Should this ceasefire break down, we would expect a repeat of that safe-haven demand for the greenback.

However, we must not ignore the increasingly hawkish European Central Bank, which is now expected to deliver at least two rate hikes this year. This policy divergence acts as a strong counterbalance and provides underlying support for the Euro. Looking back at the ECB’s aggressive rate-hiking cycle that began in 2022, we know they are capable of moving decisively to combat inflation, which could limit how far the EUR/USD can fall.

Therefore, traders might consider using the post-CPI volatility to establish positions for the coming weeks. A sharp drop in the pair following a high inflation number could present a buying opportunity for those betting on the ECB’s hawkish stance. Conversely, a spike on weak inflation data might be an opportunity to short the pair if one believes the geopolitical risks will ultimately dominate.

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Japanese Prime Minister Sanae Takaichi said the government is weighing a plan to release about 20 days’ worth of extra oil reserves from early May, Reuters reported on Friday. The proposal is aimed at steadying domestic energy supplies.

The plan comes as shipping disruptions continue in the Strait of Hormuz, despite a recent two-week ceasefire between the United States and Iran. The disruptions have raised concerns about transport and supply routes.

Finance Minister Satsuki Katayama said there were no immediate risks of an oil shortage. She also said the government is not in a position to discuss measures against possible shortages.

Market Impact Of A Reserve Release

Japan’s plan to release oil reserves starting in May is likely to put some downward pressure on front-month crude oil futures. We see this as a signal to anticipate a short-term dip in prices, as the market will need to absorb this new supply. However, the move is a reaction to a serious geopolitical threat, not a change in fundamental demand.

The two-week ceasefire in the Strait of Hormuz is the critical factor, and we view it as extremely fragile. With roughly 20% of the world’s total oil consumption passing through that single point, any renewed conflict would send prices sharply higher, far outweighing the impact of Japan’s release. This underlying tension suggests buying longer-dated call options to hedge against a sudden price spike is a prudent move.

We are seeing a classic conflict between a short-term bearish signal (the supply release) and a long-term bullish risk (geopolitical instability). We recall how the large U.S. strategic reserve releases in 2022 only provided temporary price relief before market realities took over again. Therefore, we believe this planned release offers a brief window to enter bullish positions at a potentially lower price.

Volatility Strategy Considerations

The contradictory statements from the Prime Minister and Finance Minister create uncertainty, which typically increases options premiums. We expect oil price volatility, which hovered around an elevated 35% for much of 2025 during the initial Red Sea disruptions, to climb again as we approach May. Traders should consider strategies that profit from this volatility itself, regardless of the ultimate direction of oil prices.

Given that Japan relies on the Middle East for over 90% of its oil imports, the Prime Minister’s actions should be seen as the more credible indicator of government concern. We are advising traders to position for a dip in the next few weeks followed by significant upside risk through the summer. A calendar spread, selling a May or June contract while buying an August contract, could be an effective way to play this dynamic.

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Colombia’s consumer price index (month-on-month) rose by 0.78% in March. The result was above the expected 0.69%.

The data shows inflation increased more than forecasts for the month. Only the month-on-month CPI figure and the expectation were provided.

Inflation Surprise And Policy Implications

The higher-than-expected March inflation reading of 0.78% signals that price pressures are not fading as quickly as we anticipated. This will likely force the Banco de la República to reconsider the pace of its monetary easing cycle. We should now expect the board to be more hawkish in its upcoming meetings.

With the annual inflation rate now running at 5.8%, still well above the 3% official target, this data supports keeping the policy rate elevated from its current 9.50%. Traders should look at positions that benefit from fewer rate cuts being priced into the curve for the second quarter. This is a significant shift from the market sentiment we saw building throughout 2025, which was geared towards a faster easing path.

This outlook makes the Colombian peso more attractive for carry trades, as the interest rate differential with other currencies remains wide. We should consider positioning for further strength in the COP against the US dollar, especially as the Federal Reserve has signaled a steady policy. A move towards the 3,800 level in the USD/COP pair is now more likely in the coming weeks.

We should remember the aggressive hiking cycle that peaked back in 2023 to combat a similar surge in prices. The central bank showed then it is willing to prioritize its inflation mandate over stimulating short-term growth. That history adds credibility to the view that the bank will act cautiously now, supporting a hawkish stance on rates.

Historical Context For Central Bank Reaction

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Colombia’s consumer price index (CPI) rose 5.56% year on year in March. This was above the forecast of 5.47%.

The March reading was 0.09 percentage points higher than expected. The data compares actual inflation with the market estimate for the same month.

Policy Outlook After Inflation Surprise

With March’s annual inflation coming in at 5.56%, we are now looking at a number that surpassed market consensus. This print disrupts the steady disinflationary path we observed for most of 2025, when inflation fell consistently from over 8%. This surprise will force a reassessment of the central bank’s policy trajectory for the remainder of the year.

We believe the central bank, which cut its policy rate to 6.75% last month, will now be forced to pause its easing cycle. The market had been pricing in at least two more 25-basis-point cuts by the third quarter, a view that now seems highly unlikely. Consequently, we expect to see receiving interest rate swaps reprice higher, particularly in the shorter end of the curve.

A more hawkish central bank outlook is typically supportive for the local currency. The Colombian Peso, which had already shown strength by breaking below 3,900 per dollar in late 2025, could see renewed buying interest. We are now watching for a potential move in USD/COP towards the 3,820 level, and volatility may increase, making options strategies attractive.

The prospect of higher interest rates for a longer period poses a headwind for Colombian equities. This shift complicates the recovery for the MSCI COLCAP index, which posted a modest 4% gain in the first quarter of this year after a strong 2025. We anticipate potential downside pressure on index futures as higher financing costs could dampen the 2.8% economic growth that had been forecast for 2026.

Market Implications Across Asset Classes

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GBP/USD rose for a fourth session on Thursday, up 0.31% and trading in the mid-1.3400s. It reached 1.3480 before easing back, with 1.3400 to 1.3450 acting as a firm cap, and it has rebounded about 300 pips from near 1.3150 in early April.

A two-week US-Iran ceasefire has reduced demand for the US Dollar as a safe haven. February US PCE inflation printed hotter than expected at 12:30 GMT, with headline at 2.8% YoY versus 2.6% consensus, core at 3.0% YoY, and both measures at 0.4% MoM.

Markets Focus On Us Cpi

Markets now focus on the March US CPI release on Friday at 12:30 GMT. Forecasts are 0.8% MoM headline with about 3.1% to 3.3% YoY, and core at 0.2% to 0.3% MoM and 2.7% YoY.

GBP/USD was around 1.3435 and remains above the 50-day and 200-day EMAs at 1.3388 and 1.3372. Stochastic RSI is near 62, while rate futures imply almost no chance of a Fed cut before September.

Looking back at the situation in the spring of 2025, we can see the difficulty GBP/USD had in breaking above the 1.3450 resistance level. That ceiling proved significant, as the pair was unable to sustain those highs. We are now trading closer to 1.2720, showing how the US Dollar’s yield advantage ultimately dominated.

The inflation concerns noted in 2025 have not disappeared and are central to our current strategy. With recent data showing US CPI still firm at 3.5% and UK inflation at 3.2%, the Federal Reserve remains more cautious than the Bank of England. This interest rate difference continues to weigh on the pound, making it difficult for the currency to rally meaningfully.

Derivatives Positioning And Risk

Given this context, derivative traders should consider positioning for limited upside in GBP/USD. Buying put options can offer downside protection or a direct bet on the pair falling further toward the 1.2600 level. Implied volatility has been relatively subdued, with the GBPUSD 1-month volatility index hovering around 6.5%, making option premiums relatively inexpensive.

Alternatively, selling call spreads with a ceiling around the 1.2800 to 1.2850 area could be a prudent strategy. This approach profits if the pair moves sideways or down, capitalizing on the persistent resistance we have seen. This strategy aligns with the view that any rallies will be shallow and ultimately fade.

We must also remember the geopolitical factors mentioned last year. While the US-Iran ceasefire was a focus then, ongoing global uncertainty continues to support the US Dollar as a safe-haven asset. This underlying bid for the dollar provides a constant headwind for currencies like sterling.

The core issue remains the hawkish stance of the Federal Reserve, which was evident in 2025 and persists today. Rate futures markets are currently pricing in only one or two rate cuts from the Fed this year, a significant shift from earlier expectations. This reinforces the case for a stronger dollar and suggests any strength in GBP/USD should be viewed with skepticism.

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New Zealand’s Business NZ Performance of Manufacturing Index (PMI) fell to 53.2 in March. It was 55 in the previous month.

A PMI reading above 50 indicates expansion in manufacturing activity. A reading below 50 indicates contraction.

Manufacturing Expansion Slows

We have seen the New Zealand Business NZ PMI figure for March fall to 53.2, a noticeable dip from the previous month’s 55. While this still indicates economic expansion, the slowing momentum is a key signal for the weeks ahead. This deceleration suggests that the post-pandemic recovery pace might be starting to cool off.

This cooling data point makes it less likely the Reserve Bank of New Zealand will pursue aggressive interest rate hikes. We should therefore consider positioning for a more stable or even dovish monetary policy outlook. This could make receiving fixed on interest rate swaps an increasingly attractive proposition over the next quarter.

The currency market will likely react to this, putting downward pressure on the New Zealand dollar. With recent data showing New Zealand’s quarterly inflation just eased to 2.8%, the case for a strong Kiwi dollar is weakening. Derivative traders could look at buying put options on the NZD/USD pair as a way to profit from this potential slide.

Looking back, we saw a similar pattern in mid-2025 when a series of soft manufacturing prints preceded a 3% drop in the Kiwi over the following two months. That historical move suggests the market is sensitive to signs of slowing growth. This precedent reinforces the idea that hedging against or speculating on NZD weakness could be timely.

For the equity markets, this slowdown could be a headwind for corporate earnings, especially for cyclically exposed companies. We are already seeing analysts trim forecasts for the NZX 50. Using options to establish bearish positions, such as buying puts on the index, could provide a hedge against a potential market downturn.

Equity And Fx Hedging Strategies

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AUD/USD rose 0.56% on Thursday, extending gains to four sessions and nearing 0.7100, last seen in late March. It is above the 200-period exponential moving average near 0.6950 on the hourly chart, while Stochastic RSI is back above 80.

The move followed a two-week halt in US military operations against Iran, linked to Iran reopening the Strait of Hormuz. There is also uncertainty over whether Israel will halt operations in Lebanon, which was reported as part of Iran’s conditions.

Us Inflation Data In Focus

US February Personal Consumption Expenditures data came in above or in line with forecasts. Headline PCE was 2.8% year-on-year versus 2.6% expected, core PCE was 3.0% year-on-year, and both rose 0.4% month-on-month.

March US CPI is due at 12:30 GMT on Friday. FactSet forecasts headline CPI at 0.8% month-on-month and about 3.1%–3.3% year-on-year, with core CPI at 0.2%–0.3% month-on-month and 2.7% year-on-year.

On the daily chart, AUD/USD trades at 0.7084, above the 50-day EMA at 0.6967 and the 200-day EMA at 0.6752. Support levels cited include 0.7084, then 0.6967, and 0.6752, with Stochastic RSI around 57.

Looking back at the situation in April 2025 gives us a clear playbook for today. We saw how a fragile ceasefire created a temporary risk-on rally that lifted the Aussie dollar significantly. This pattern of geopolitical news overriding economic data for a short period is something we need to be prepared for again.

That ceasefire trade was a classic short-term opportunity, and we should view current lulls in global tensions similarly. Given this, we can use derivative markets to protect against sudden reversals by buying out-of-the-money AUD/USD put options. This provides a cheap hedge in case the calm breaks and the US Dollar’s safe-haven status returns with force.

Options And Volatility Strategy

The 2025 scenario showed markets ignoring hot inflation data in favor of geopolitics, but that never lasts. Just today, we learned that the March US Consumer Price Index (CPI) came in hotter than expected at 3.5% year-over-year, well above the Fed’s target. This tells us that sticky inflation remains the dominant economic theme, limiting how high risk currencies like the Aussie can run.

We should remember the warning about the CPI report being a double-edged sword. With major data releases, implied volatility often rises, making options strategies like long straddles or strangles attractive. This approach allows us to profit from a large price swing in AUD/USD, regardless of whether the direction is up or down.

The Aussie’s fundamental picture today is also different from that 2025 rally towards 0.7100. Iron ore prices, a key driver for the Australian economy, have recently fallen below $100 per tonne, a significant drop from last year’s levels. This fundamental weakness suggests that any AUD/USD rallies will likely face strong resistance and should be viewed with skepticism.

The technical analysis from last year correctly identified the 50-day moving average as a critical level for the trend. We should apply the same thinking today, using key moving averages to define our entry and exit points for trades. A sustained break below such a level would be our signal that a minor pullback is becoming a more significant downtrend.

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