TD Securities expects Norges Bank to keep the policy rate unchanged at 4.00%. The view comes as inflation remains at 2.8% year on year on the headline measure. The bank points to risks that inflation could rise again after the Middle East crisis and an energy price shock. It also flags elevated global uncertainty.

Policy Stance Remains Restrictive

TD Securities expects the central bank’s statement to note that restrictive monetary policy is still needed. It expects the bank to say the balance of risks will be monitored before any next move on the policy rate. TD Securities also expects projections to reflect uncertainty around the outlook. It anticipates less commitment to a forecast of 1–2 rate cuts this year, with any cuts linked to the duration of the conflict. Looking back at the analysis from early 2025, we recall the significant uncertainty that kept Norges Bank’s policy rate at a restrictive 4.00%. The concerns over sticky inflation and the energy price shock were valid, leading to a prolonged period of caution from the central bank. This hawkish hold shaped market positioning for much of last year. That forecast for one to two rate cuts in 2025 eventually materialized, with the policy rate today standing at 3.50%. Inflation has since cooled significantly, with the latest figures from February 2026 showing a headline rate of 2.1%, just above the bank’s target. This was helped by Brent crude prices, which after spiking last year, have since settled into a more stable range around $85 per barrel.

Trading Implications For Rates And FX

For those trading interest rate swaps and futures, this suggests the path of least resistance is for further, albeit gradual, rate cuts. With fourth-quarter 2025 GDP growth coming in at a tepid 0.2%, the central bank has a clear reason to continue easing policy to support the slowing economy. The strategy now should focus on positioning for a measured cutting cycle over the remainder of 2026. In the foreign exchange market, this creates opportunities for options on the Norwegian Krone. As Norges Bank has begun its cutting cycle, the EUR/NOK has drifted higher towards 11.55, but the bank’s cautious pace may limit significant Krone weakness compared to other currencies. This environment is favorable for traders using volatility strategies or selling covered calls on the Krone, betting that any further depreciation will be slow and orderly. Create your live VT Markets account and start trading now.

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AUD/USD is trading close to the bottom of its recent 0.6900–0.7200 range. February inflation came in a little below forecasts, but there are expectations that inflation will pick up as higher energy prices pass through. In February, headline CPI fell by 0.1 points to 3.7% year on year, versus a 3.8% consensus. Trimmed mean CPI was 3.3% year on year, versus a 3.4% consensus, for a third straight month.

Rba Focus On Underlying Inflation Measures

Australia’s monthly CPI is the main inflation gauge, but the Reserve Bank of Australia focuses on underlying inflation measures in the quarterly CPI. The RBA has warned that inflation may stay above target for some time, with risks tilted to the upside, including to inflation expectations. The RBA also noted that uncertainty in the Middle East could affect global and domestic inflation under various scenarios. Q1 CPI is due on 29 April, ahead of the RBA decision on 5 May. Markets are pricing a 65% chance of a 25 bps rise to 4.35% on 5 May. The piece was produced using an AI tool and reviewed by an editor, and it was published by the FXStreet Insights Team. The AUD/USD is currently trading near 0.6550, testing the lower end of its range from the past few months. While the most recent inflation data was a little softer than some expected, the outlook is for price pressures to pick up again. This creates a tense situation ahead of key data releases.

Markets Brace For Q1 Cpi And Rba Decision

February’s monthly headline inflation came in at 3.5%, which is still well above the Reserve Bank of Australia’s target band. We remember how core inflation proved sticky throughout 2025, and with the trimmed mean measure now at a stubborn 3.6%, the RBA has little reason to relax its stance. The final leg of getting inflation back to target is proving to be the most difficult. A primary driver for this caution is the persistent strength in energy prices, with global crude oil holding above $85 a barrel. This directly feeds into the RBA’s recent warnings about upside risks to inflation coming from global developments. This makes the upcoming quarterly inflation report the single most important data point for the near term. Given this outlook, markets have pushed back expectations for any RBA rate cuts until late in the year. Derivative traders should anticipate a rise in volatility leading up to the Q1 CPI data on April 29. The subsequent RBA policy decision on May 5 will be almost entirely dependent on whether that inflation reading shows any significant cooling. Create your live VT Markets account and start trading now.

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ABN AMRO economists revised their Eurozone outlook after an Iran-related energy shock, forecasting weaker growth and higher inflation. They expect tighter policy in the near term to reduce the risk of inflation feeding into wider price and wage setting. Inflation is forecast to move above the ECB’s 2% target from March and peak above 3% in the following months, as higher energy costs pass through. Extra upward pressure is expected from food prices linked to higher fertiliser costs, and from energy-intensive goods.

Policy Outlook After The Energy Shock

The bank expects the ECB to raise rates in April and June, taking the deposit rate to 2.50%. It assigns more certainty to an April rise than a June move because of conflict uncertainty. By early 2027, ABN AMRO expects the ECB to begin easing towards a neutral stance as inflation stays close to target. It forecasts one rate cut in Q1 2027 and one in Q2 2027, bringing the deposit rate back to 2%. We are now looking at how the Iran-related energy shock of 2025 played out against expectations from that time. The forecast for two European Central Bank rate hikes in the second quarter of 2025 proved accurate, as we saw the ECB act decisively to combat rising inflation expectations. That front-loading of rate hikes has set the stage for our current market environment. Given that the ECB deposit rate has been held at 2.50% since June 2025, the focus now shifts to the timing of future cuts. Eurostat’s latest flash estimate for March 2026 shows headline inflation has cooled to 2.4%, down from the peak of 3.2% we saw last year. This steady decline supports positioning for lower rates, potentially by receiving fixed rates on interest rate swaps dated for early 2027.

Market Implications And Trading Considerations

The prediction for weaker growth was also correct, with Eurozone GDP growing by a mere 0.5% in 2025. Recent data shows a fragile recovery, as Germany’s March 2026 manufacturing PMI came in at 49.8, still signalling a slight contraction. Traders should consider buying put options on the EURO STOXX 50 index to hedge against any further economic disappointments. Brent crude, which spiked to over $110 a barrel during the 2025 crisis, has since stabilized and is currently trading around $85. While the immediate shock has passed, the higher food and goods prices it caused are only now fully receding. The lower implied volatility in the energy markets makes selling covered call options on oil futures a potentially viable strategy to generate income. The original analysis anticipated rate cuts beginning in early 2027 to a neutral rate of 2%. However, recent ECB commentary has been more cautious, linking any cuts directly to wage growth data, which remains elevated at 4.1% year-over-year. This uncertainty suggests the predicted cuts could be delayed, making options that profit from range-bound interest rates, like short strangles on Euribor futures, more attractive. Create your live VT Markets account and start trading now.

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UK inflation is expected to fall in the near term, with the next Ofgem household energy price cap update due in July. Current wholesale prices suggest about a 25% rise in energy bills in July. Headline CPI is forecast to drop to 2.3% in April from 3% in February, as changes from the start of the last financial year drop out of the annual comparison. Services inflation is expected to fall by more than 1 percentage point from 4.3%.

Near Term Inflation Path

With oil at 100 USD/bbl and TTF natural gas at 50–55 EUR/MWh, inflation could briefly reach 4% in autumn. Under ING’s base case, where disruption eases in 2Q and energy prices gradually fall, inflation is expected to peak at 3.5% in September. The inflation peak is described as 1 percentage point higher than anticipated before the war began. The outlook also points to 2025 as a better reference year for how the economy may respond to the current situation. With current uncertainty, we should look to the past for guidance on how the market might react in the coming weeks. The energy shock of 2022 provides a stark reminder of how quickly forecasts can be wrong. Early projections at that time saw inflation peaking around 4%, but we now know the Consumer Price Index (CPI) actually surged to a 41-year high of 11.1% by October 2022. This experience suggests that initial inflation estimates following a supply shock are often too low. Therefore, traders should be wary of any consensus view that today’s pressures will be minor or brief. Volatility options could be underpriced if the market is expecting a smooth adjustment.

Implications For Traders

However, we believe the economic response will follow the playbook from 2025, not 2022. Last year, we saw inflation fall steadily back towards the 2% target, but it came alongside a very fragile jobs market and weak GDP growth, which the ONS confirmed was just 0.4% for the entire year. This backdrop made the Bank of England hesitant to make any sudden moves. Given that the latest unemployment data from February 2026 shows a slight uptick to 4.5%, the Bank will likely prioritize economic stability over aggressively tackling the recent rise in services inflation. They will be cautious about tightening policy and risking a recession, just as they were through much of last year. This suggests that interest rate futures may be pricing in a more aggressive response than we are likely to get. Traders should consider positions that benefit from the Bank of England remaining behind the curve. This could involve looking at interest rate swaps that bet on rates staying lower for longer than the market currently anticipates. The key is to trade the central bank’s likely reaction, which will be shaped by the fragile economic memory of 2025. Create your live VT Markets account and start trading now.

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Commerzbank’s Chief Economist Dr. Jörg Krämer said the March fall in the German Ifo Business Climate Index reflects rising war-related risks, not current economic damage. He said growth in Germany and the euro area could be cut by 0.4 percentage points in 2026 if the Middle East conflict and a Strait of Hormuz closure persist. The Ifo Business Climate Index fell from 88.4 to 86.4 in March, close to the consensus forecast of 86.3. Companies’ view of current conditions was unchanged at 86.7, while expectations for the next six months fell from 90.2 to 86.0.

Sector Sentiment Weakens Broadly

All major sectors recorded weaker sentiment. The unchanged reading for current conditions suggests firms were not yet facing direct war-related effects in March. The drop in expectations points to concerns about future economic effects. Model estimates indicated that if the war and a Strait of Hormuz blockade continued for another month or two, growth in Germany and the euro area could be reduced by around 0.4 percentage points this year. The article said the index might recover in April if the conflict ends within days and causes no major economic effects. It also stated the piece was produced using an AI tool and reviewed by an editor. The sharp fall in the German Ifo business expectations, from 90.2 to 86.0, is a major red flag for the coming weeks. This signals a significant rise in fear about the future, directly linked to tensions in the Middle East. While the current business assessment is unchanged, this gap between today’s reality and tomorrow’s fears is where trading opportunities arise.

Volatility And Currency Hedging Strategies

We see this as a clear echo of the energy price shock that hit German industry hard back in 2022. The risk of a prolonged closure of the Strait of Hormuz, a chokepoint for about a fifth of global oil supply, has already pushed Brent crude prices up over 15% in the last month. The current situation suggests that purchasing call options on oil futures is a direct way to position for further supply-side shocks. Given the potential 0.4 percentage point hit to Euro area growth, we should consider hedging against a downturn in European equities. Buying put options on the German DAX or the broader Euro Stoxx 50 index offers protection if these fears materialize into real economic damage in the second quarter. This is a prudent move as long as the geopolitical situation remains unresolved. This uncertainty is causing market volatility to rise, with the VSTOXX index now trading above its long-term average. This environment makes buying calls on volatility itself an attractive strategy. It is a direct bet that market anxiety will persist or worsen in the near term. A slowdown in the Eurozone would also place significant pressure on the Euro. The currency is already testing key support levels against the dollar. We should therefore look at strategies that benefit from a weaker Euro, such as selling EUR/USD futures or buying puts on the currency. Create your live VT Markets account and start trading now.

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Bank of England Monetary Policy Committee member Megan Greene said on Wednesday there is a risk inflation expectations could rise if the Bank’s inflation forecasts are correct, according to Reuters. She said there are “lots of reasons” the current situation differs from 2022-23. Greene said interest rates are higher and there is more slack in the economy than in 2022-23. She said the trade-off for monetary policy could be bigger this time, with greater downside risks for the economy.

Inflation Expectations And Second Round Risks

She said workers and companies might react faster to inflation effects than they did in 2022-23. She added that rising household inflation expectations do not necessarily mean there will be second-round effects, but could point to higher risk. Greene said she was not tempted to vote for a rate rise last week. She also said financial conditions have tightened and that this will affect the economy. There is a growing concern that inflation expectations could become unanchored, even though the situation is very different from what we saw in 2022 and 2023. The latest CPI data showing inflation stubbornly above target at 3.1% supports this view, creating a difficult trade-off for monetary policy. With the economy showing signs of weakness, demonstrated by last quarter’s meager 0.1% GDP growth, further rate hikes seem unlikely for now. This suggests interest rate markets may remain range-bound in the immediate future, with the central bank in a holding pattern. Traders should consider options strategies, like straddles on SONIA futures, which would profit from a large move in either direction later in the year. Unlike the clear hiking cycle we experienced a few years ago, the path forward is now much more uncertain.

Pound And Rates Market Implications

The combination of persistent inflation and a slowing economy poses a significant risk to the British Pound. This stagflationary environment makes the currency unattractive, so we could see a decline against the US Dollar. Buying GBP/USD put options could be a prudent way to position for potential sterling weakness in the coming months. For equity markets, the tightening of financial conditions presents a clear headwind for UK stocks. The risk of an economic downturn is now greater, which could pressure corporate earnings and valuations across the FTSE. We believe traders should consider protective strategies, such as buying put options on the FTSE 100 index, to hedge against this downside risk. Ultimately, the key takeaway is that volatility is likely to increase as the market digests conflicting data points. With recent figures showing wage growth still elevated at 4.5%, the risk of second-round inflation effects is very real. This means upcoming inflation and employment reports will be critical, and any surprise could trigger sharp market movements. Create your live VT Markets account and start trading now.

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Iran’s Fars news agency reported on Wednesday that Tehran does not view a truce or talks as workable under current conditions. The report came as the United States increased efforts to secure a ceasefire and start direct negotiations. Following the report, crude oil prices moved slightly higher. West Texas Intermediate was last trading above $88 per barrel and was marginally higher on the day.

Market Reaction And Key Levels

The US Dollar Index remained in positive territory in early American trading. It was above 99.30. Looking back, the rejection of a truce this time in 2025 was a key event that added a persistent risk premium to energy markets throughout the last year. That headline pushed WTI crude oil from $88 toward a sustained range above $90, a level we now see as the new baseline. This has fundamentally altered how we should view downside risk in the oil sector. Currently, with WTI holding steady around $92 per barrel, the elevated implied volatility makes selling options an attractive strategy. Recent OPEC+ decisions to maintain production cuts through the second quarter of 2026 provide a solid floor, suggesting that selling out-of-the-money puts below $85 could be a prudent way to collect premium. The market has priced in tension, but not a full-scale disruption, which supports this approach. The strong US Dollar Index, which moved from 99.30 to its current level near 104.50 over the past twelve months, reflects a flight to safety and a hawkish Federal Reserve. With US inflation data last month coming in at 3.1%, slightly above expectations, the dollar is likely to remain supported. Traders should consider buying call options on dollar-tracking ETFs to position for continued strength.

Volatility And Trading Strategy Implications

We have seen the CBOE Crude Oil Volatility Index (OVX) average near 35 for the past six months, which is roughly 40% higher than the five-year average prior to 2025. This sustained elevation in volatility means option premiums are rich, rewarding strategies that bet on price stability rather than direction. This environment makes complex strategies like iron condors on crude oil futures potentially profitable. In the immediate weeks ahead, we will be watching weekly EIA inventory reports for any signs of demand destruction from these higher prices. Any renewed diplomatic chatter, however unlikely, would cause a sharp drop in volatility and should be monitored closely. The primary risk remains an unexpected escalation in the Middle East, which would render defensive put-selling strategies ineffective. Create your live VT Markets account and start trading now.

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Key Points

• USDJPY trades near 159.45, with the yen weakening for a third straight session.
• Rising oil prices are pressuring Japan’s economy and weighing on the currency.
• Ongoing Middle East tensions keep safe-haven demand tilted toward the dollar.

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The Japanese yen weakened further on Thursday, slipping toward the 159.5 level against the dollar, marking its third consecutive session of losses.

USDJPY is currently trading near 159.45, reflecting renewed demand for the U.S. dollar as geopolitical uncertainty persists.

The move comes as markets react to mixed signals around diplomatic efforts in the Middle East, with little clarity on whether tensions will ease.

Continued uncertainty may keep USDJPY elevated, especially if oil prices remain firm.

Oil Rebound Weighs on Japan’s Economic Outlook

A key driver behind the yen’s weakness is the rebound in oil prices.

Japan’s heavy reliance on imported energy means higher oil prices directly impact its economy, raising costs and increasing inflationary pressure.

Japan’s two-year government bond yield climbed to its highest level since 1996, as expectations build for a near-term Bank of Japan rate hike https://t.co/ly1Gk5gZKc

— Bloomberg (@business) March 26, 2026

This dynamic weakens the yen by worsening Japan’s trade balance and reducing growth expectations.

Even as Japan received two oil tankers that bypassed the Strait of Hormuz, offering temporary relief, the broader supply situation remains uncertain.

If oil prices continue to rise, the yen may face further downside pressure.

Geopolitical Tensions Limit Risk Recovery

The geopolitical backdrop remains a central factor in currency markets.

While the U.S. has indicated that negotiations are ongoing, Iran has rejected direct talks and proposed its own terms, including control over the Strait of Hormuz.

This has reduced expectations of a near-term resolution and kept market sentiment cautious.

In this environment, investors continue to favour the U.S. dollar as a safe-haven asset, limiting any meaningful recovery in the yen.

Policy and Security Considerations Add Complexity

Japan is also weighing broader strategic responses to the crisis.

There have been discussions about potentially deploying warships to secure key shipping routes, highlighting the seriousness of the situation for energy-importing nations.

Japan should consider sending warships to help jointly secure the Strait of Hormuz with other nations — even before a ceasefire, a former top national security adviser says https://t.co/glvz2KHufW

— Bloomberg (@business) March 26, 2026

Such measures reflect the growing link between geopolitical risk and economic stability.

At the same time, currency markets remain sensitive to any signs of intervention, particularly as USDJPY approaches the 160 level, a zone that has previously triggered official action.

Intervention risks may increase if the pair moves closer to or above 160.

Technical Analysis

USDJPY is trading near 159.45, holding steady just below recent highs as the pair continues to press against the upper end of its range. Price action suggests sustained bullish pressure, with the market testing levels last seen near the 159.90–160.00 zone.

From a technical standpoint, the trend remains firmly bullish. Price is trading above all key moving averages, with the 5-day (159.05) and 10-day (159.06) tightly clustered just below current levels, providing immediate support. The 20-day (158.40) and 30-day (157.18) continue to slope upward, reinforcing the strength of the underlying uptrend.

Key levels to watch:

• Support:159.00 → 158.40 → 157.20
• Resistance:159.90 → 160.50 → 161.00+

The pair is currently consolidating just below 159.90, a level that has capped recent upside attempts. A clean break above this resistance could trigger a move toward 160.50, with further upside potential if momentum accelerates.

On the downside, 159.00 is acting as immediate support. A break below this level could lead to a deeper pullback toward 158.40, though such a move would likely be corrective unless broader momentum shifts.

Overall, USDJPY remains in a strong uptrend with shallow pullbacks, indicating continued demand for the dollar against the yen. However, with price nearing the 160 level, traders should remain cautious of potential volatility or intervention risks, as this area has historically attracted heightened attention.

What Traders Should Watch Next

USDJPY remains driven by a mix of macro and geopolitical factors. Key drivers include:

• Oil price movements and energy supply developments.
• Progress or setbacks in Middle East diplomacy.
• Potential intervention signals from Japanese authorities.
• Broader U.S. dollar strength.

For now, the yen remains under pressure, with energy costs and geopolitical uncertainty continuing to shape its direction.

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FAQs

What is Driving the Recent Weakness in USDJPY?

USDJPY is rising due to strong dollar demand and higher oil prices, which weigh on Japan’s import-heavy economy.

Why Do Higher Oil Prices Weaken the Japanese Yen?

Japan relies heavily on imported energy. Rising oil prices increase costs, worsen the trade balance, and pressure the yen.

Why is the U.S. Dollar Strengthening in This Environment?

The dollar is benefiting from safe-haven demand and the U.S.’s status as a net energy exporter during supply shocks.

What is the Significance of the 160 Level in USDJPY?

The 160 level is a key psychological and policy threshold where Japanese authorities have previously intervened.

Could Japan Intervene to Support the Yen?

Yes, intervention becomes more likely if USDJPY approaches or exceeds 160, especially during rapid or disorderly moves.

How Does the Middle East Conflict Affect USDJPY?

Escalation pushes oil prices higher and increases global uncertainty, supporting the dollar while weakening the yen.

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Canada’s month-on-month change in Employment Insurance beneficiaries fell to -1.9% in January. This follows a 0.4% change in the previous period. We are seeing a significant tightening in the Canadian labour market, as the number of people receiving Employment Insurance benefits fell by 1.9% in January. This reversal from the previous month’s increase suggests more Canadians are finding work. This unexpected strength should make us reconsider the timing of any potential Bank of Canada rate cuts. This strong employment data puts the Bank of Canada in a difficult position, likely pushing any rate cuts further into the year. With the market having priced in cuts for the summer, derivatives tied to the overnight rate, like CORRA futures, could see selling pressure. We should anticipate yields on government bonds to rise in the coming weeks. Adding to this pressure, recent data for February showed inflation ticked back up to 3.1%, moving away from the central bank’s target. This combination of a hot job market and stubborn inflation reinforces a “higher for longer” interest rate environment. This makes bearish interest rate positions, such as buying puts on bond ETFs, seem more attractive. From our perspective in 2025, we saw the labor market show signs of cooling, which built the case for eventual monetary easing. However, this new 2026 data sharply contradicts that trend, suggesting the underlying economic momentum is much stronger than anticipated. The market will now have to unwind trades that were based on last year’s assumptions. Given this, we see potential strength in the Canadian dollar, especially against currencies where the central bank is more dovish. We should look at buying call options on the CAD/USD pair with expirations in the second quarter. Historically, a strong domestic economy combined with a hawkish central bank has been a primary driver for currency appreciation. This positive economic signal is also supportive of Canadian equities, particularly in consumer-focused sectors. We might consider buying call options on the S&P/TSX 60 index as a broad play on a resilient domestic economy. The data suggests corporate earnings could surprise to the upside in the first half of the year.

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The United States Import Price Index rose by 1.3% year on year in February. This was up from -0.1% in the previous reading. The change shows import prices moved from a year-on-year decline to a year-on-year rise. The figures compare February prices with the same month one year earlier.

Import Price Reversal Signals Renewed Inflation Risk

The sharp reversal in the year-over-year import price index for February is a significant signal. This move from deflationary to inflationary territory challenges the market’s prevailing view, held through much of 2025, that price pressures were fully contained. We must now seriously consider that a new wave of inflation is building. This data complicates the Federal Reserve’s path forward, making a summer rate cut less certain. Combined with the latest February CPI report, which showed core inflation holding stubbornly above 3%, this import price spike will likely force a more hawkish tone from policymakers. We should adjust interest rate derivative positions, like those in SOFR futures, to reflect a lower probability of near-term easing. A more hesitant Fed almost always translates to a stronger U.S. dollar. The Dollar Index (DXY) has already reacted, climbing above 105 for the first time this year as traders re-evaluate global interest rate differentials. We see value in positioning for further dollar strength, perhaps through call options or futures contracts against currencies with more dovish central banks. For equity derivatives, this environment warrants a more defensive posture. Higher potential rates and persistent inflation can compress company profit margins and weigh on market valuations, which we saw in the market reactions during the 2022-2023 hiking cycle. We should consider buying protective puts on major indices like the S&P 500 or raising exposure to volatility through VIX futures.

Commodity Driven Pressures And Portfolio Positioning

The source of this import price pressure appears linked to commodities, specifically energy and industrial metals. With Brent crude recently breaking the $90 per barrel threshold due to renewed supply discipline from key producers, the input costs for goods are clearly rising again. We should explore call options on commodity-linked ETFs to gain exposure to this underlying trend. Create your live VT Markets account and start trading now.

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