GBP/JPY rose on Tuesday as the Yen weakened amid concern that the US-Iran conflict could disrupt shipping through the Strait of Hormuz and affect energy supplies to Japan. The pair traded around 212.25, near a one-month high. Japan sources about 95% of its crude oil imports from the Middle East, with roughly 70% moving through the Strait of Hormuz. Any extended disruption could weigh on Japan’s economic growth.

Strait Of Hormuz Risk And Yen Sensitivity

Oil markets have carried a geopolitical risk premium, although prices fell on Monday, with WTI down 5.84% and Brent down 3.69%. The drop followed comments from US President Donald Trump that the war was “very complete, pretty much”. G7 countries are discussing a coordinated release of oil reserves via the International Energy Agency. Japan’s Trade Minister Ryosei Akazawa said Japan supports the plan, and G7 Energy Ministers are due to meet later on Tuesday. Oil prices remain elevated as airstrikes continue across the Middle East, raising inflation concerns for central banks. Sterling found modest support as markets reduced expectations of a Bank of England rate cut in March, previously priced at about an 80% probability, while the Bank of Japan is also seen as potentially delaying further rate rises. Japan’s GDP grew 0.3% quarter-on-quarter in Q4, up from 0.1%, and annualised GDP rose to 1.3% from 0.2%, above the 1.2% forecast. UK BRC like-for-like retail sales rose 0.7% year-on-year in February, down from 2.4% and below the 2.3% forecast.

Market Backdrop And Rate Divergence

Looking back to early 2025, we saw the Yen weaken significantly due to fears over energy supplies from the Middle East. This dynamic pushed GBP/JPY towards the 212.00 level as Japan’s heavy reliance on imported oil became a key vulnerability. The market priced in a substantial geopolitical risk premium at that time. However, the coordinated release of strategic reserves by the International Energy Agency last year helped calm the market, and we saw Brent crude prices retreat from their highs. By late 2025, prices had stabilized, which reduced the immediate pressure on the Yen. Currently, Brent is trading around $82 a barrel, showing the initial panic has subsided for now. On the Sterling side, the expected Bank of England rate cut in March 2025 never materialized. UK core inflation remained stubbornly above 3% for the second half of the year, according to the Office for National Statistics, forcing the central bank to maintain a restrictive stance. This continued policy divergence has provided underlying support for the Pound. Conversely, the Bank of Japan finally ended its negative interest rate policy in January of this year, a major policy shift we had been anticipating. While the hike was small, moving the overnight call rate to a range of 0.0% to 0.1%, it signaled a new era for monetary policy. This has introduced a strengthening force for the Yen that was not a factor a year ago. This creates a more complicated picture for the coming weeks, unlike the clear upward trend we saw in early 2025. Implied volatility on GBP/JPY options has increased, with the 1-month contract now pricing in larger swings than it did during the oil scare. Traders should use options to trade this expected choppiness, rather than taking a simple directional bet. With GBP/JPY currently trading near 208.50, traders should consider strategies like long straddles, which profit from a large price move in either direction before options expire. Be aware of the risk of volatility crush if the pair consolidates instead. The key is that the clear, one-sided trade of last year is over. Create your live VT Markets account and start trading now.

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China’s metal imports were mixed early in the year. Iron ore imports rose 10% year-on-year in January and February, despite lower steel output. China’s imports of copper ore and concentrates increased 4.9% year-on-year. Volumes averaged about 2.5 million tonnes per month, only slightly below recent months, with the Chinese New Year typically reducing early-year imports.

Raw Copper Imports Fall

Imports of raw copper and copper products fell 16% year-on-year. These shipments averaged about 350 thousand tonnes per month, below recent months. Import patterns point to rising copper production in China. This comes even as treatment and refinery charges stayed negative in February, meaning smelters paid mines a premium to refine copper. Supply risks are also noted for Congo, which accounts for 14% of global copper ore output. A blockage linked to Iran has limited sulphur exports from the Gulf through the Strait of Hormuz, which may reduce sulphuric acid availability and disrupt mining in the coming weeks. We are seeing a clear conflict between robust demand signals and a growing supply risk. China’s manufacturing PMI beat expectations at 51.2 for February, and their imports of copper ore are up nearly 5% from last year, indicating smelters are ramping up production. This is confirmed by spot treatment charges, which have fallen to record lows below -$5 per tonne as smelters pay a premium to secure scarce raw material.

Watch Congo Supply Developments

The main catalyst in the coming weeks will be the supply situation in the Democratic Republic of Congo, which is responsible for 14% of global copper output. An ongoing blockage of sulphur exports from the Gulf directly threatens the supply of sulphuric acid needed for copper extraction in the region. Early reports for February 2026 already show a 2% dip in the DRC’s copper exports, suggesting these constraints are becoming a reality. This fundamental picture supports taking a bullish position on copper futures and options. We should look at buying near-term call options, focusing on the May and June 2026 contracts to capture potential price spikes from any further news of supply disruptions. This approach offers a defined-risk way to capitalize on the upside momentum. Given that LME copper is currently consolidating around the $9,550 per tonne mark, a bull call spread might be a more prudent strategy to lower the entry cost. This would involve buying a call option and simultaneously selling another call with a higher strike price for the same expiration. This strategy would benefit from a moderate price increase, which seems highly plausible. We saw a similar setup unfold during the second half of 2025 when concerns over production in Peru and Chile drove prices higher amid steady demand. That rally demonstrated how quickly the market reprices when a major supply source is threatened against a backdrop of solid consumption. The current situation with the Congo feels very familiar to that period of upward momentum. Create your live VT Markets account and start trading now.

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Market volatility around Bank of Canada rate expectations rose in March, linked to the conflict in Iran. Pricing briefly shifted from potential rate cuts to the chance of rate rises, with markets at one point pricing hikes in 2026 rather than cuts. National Bank of Canada expects the Bank of Canada to keep rates unchanged through 2026. This view assumes the Bank will look past higher petrol prices driven by oil, if Canada’s CPI stays within the 1–3% control band.

Bank Of Canada Rate Outlook

The note also points to weak growth conditions and remaining slack in the labour market. These factors are cited as supporting a steady policy stance even if oil prices remain high. The article states it was produced with the help of an AI tool and then reviewed by an editor. Volatility in Bank of Canada rate expectations has increased lately because of the conflict in Iran. Just a few weeks ago, the market was thinking about rate cuts, but now it is pricing in the possibility of hikes. We see this as a temporary swing driven by headline fear rather than a fundamental shift. We think policymakers will look through the recent jump in gasoline prices, which pushed February’s headline CPI to 2.9%. The more important core measures, however, remained stable at 2.4%, which is comfortably inside the Bank’s control band. This gives them room to wait and see, much like they did during the oil price spikes back in 2025.

Implications For Curve And Volatility

The case against hiking is strengthened by the latest jobs report, which showed the unemployment rate ticking up to 6.4% last month. Looking back, we saw GDP growth in the final quarter of 2025 was nearly flat, confirming a trend of uninspired growth. With this economic backdrop, a rate hike seems very unlikely. This suggests that the front-end of the curve, which is now pricing in a risk of hikes, is overdone. Traders could consider selling options that profit from a rate increase, as volatility is currently elevated. The current pricing in the OIS market looks like an opportunity to position for the Bank to remain on hold through 2026. Create your live VT Markets account and start trading now.

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The United States Redbook Index (year-on-year) fell to 6.2% on 6 March, down from 7% previously. The data shows a 0.8 percentage point decrease from the prior reading.

Consumer Spending Signals

The slowdown in the Redbook index to 6.2% is an early warning that consumer spending might be cooling. For us, this suggests the impact of sustained high interest rates is finally filtering through to the average shopper’s wallet. We should therefore be cautious about sectors that rely heavily on consumer discretionary spending. This data point creates a tricky situation when viewed alongside other recent numbers. The February 2026 jobs report showed a still-solid gain of 215,000 jobs, but the most recent CPI inflation reading for February came in stubbornly high at 3.4%. This combination of slowing growth and sticky inflation makes the Federal Reserve’s path forward uncertain. Given this, we are looking at purchasing puts on retail-focused ETFs as a potential hedge over the next few weeks. This strategy allows us to protect against a potential drop in retail stocks if upcoming earnings guidance reflects this consumer weakness. It is a defined-risk way to position for a potential downturn in this specific sector. Looking back from our 2025 perspective, we recall the market volatility in 2023 when the Fed was aggressively hiking rates. Those events taught us that signs of consumer weakness can precede broader market downturns. This Redbook number feels like one of those early signals that we need to take seriously.

Portfolio Protection Approach

Consequently, we are also considering protective strategies for broad market indices like the S&P 500. With the VIX volatility index hovering near a low of 14.5 last week, buying call options on the VIX could be an inexpensive way to insure the portfolio against a sudden market shock. This positions us for a potential increase in market anxiety if more weak data follows. Create your live VT Markets account and start trading now.

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AUD/USD rose above 0.7100 and moved towards 0.7150, near the mid-February high. Recent Australian business and consumer sentiment figures did not materially shift expectations for the Reserve Bank of Australia’s next move. Some labour indicators weakened. The NAB business employment conditions index fell 2 points to +3 in February, which aligns with a rising unemployment rate.

Labour Confidence Signals

Consumer data also pointed to softer labour confidence. The Westpac–MI unemployment expectations index increased 3.8% to 134.7 in March, above the long-run average of 129.2. The next RBA policy decision is due on 17 March. Cash rate futures imply 55% odds of a 25 bps rise to 4.10%. Internal RBA models referenced in the report indicate a positive output gap and tighter capacity constraints. The article notes it was produced using an AI tool and reviewed by an editor. Last year around this time, we saw the AUD/USD rally past 0.7100 on the back of aggressive rate hike expectations. The market was anticipating a move by the Reserve Bank of Australia on March 17, 2025, despite some weakening employment indicators. Today, the currency is in a much different position, trading nearer to 0.6650.

Options Strategy Implications

The outlook for the RBA’s meeting next week is far more subdued than it was in 2025. With the official cash rate having been held at 4.35% for the past four meetings, the market is pricing in a 95% probability of another hold. The latest monthly CPI indicator showing inflation remaining steady at 3.4% gives the central bank little reason to change its cautious stance. For derivative traders, this signals a shift from directional bets to strategies focused on volatility and range. One-month implied volatility for the AUD/USD has fallen to around 8.2%, significantly lower than the levels seen during the hiking cycle of the last two years. This environment suggests the market is not expecting any major price swings following next week’s RBA decision. Considering Australia’s unemployment rate recently ticked up to 4.1% in the January data, there is little domestic pressure for a hawkish surprise. We think selling short-dated options to collect premium, such as an iron condor strategy, could be effective in the coming weeks. This approach benefits from the currency staying within a predictable range, which seems likely given the current economic data. Create your live VT Markets account and start trading now.

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Deutsche Bank said UK front-end rates have had the biggest hawkish repricing among G10 central banks, which has reduced earlier dovish pricing for the Bank of England. It linked the move to recent support for sterling, alongside short-covering. It said that at the end of last month the BoE was priced more dovishly than peers, with over two full rate cuts priced. It also compared this to the spot real rate, defined as the policy rate minus the six-month annualised change in core CPI.

Market Pricing Shifts

Deutsche Bank said that, at the time of writing, markets priced just over 10bps of cuts for the whole year. It attributed the shift to concerns that inflation expectations may stay sticky, which could limit the BoE’s ability to look through an energy shock and keep cutting. It added that terms of trade effects have been the main driver of relative currency moves. It said the scale of the UK repricing versus peers, together with short-position unwinds, has supported the pound in the near term. It warned that further falls in energy prices and a reversal in front-end rates could remove that support. The market has sharply adjusted its view on the Bank of England, removing the deep interest rate cuts we saw priced in just last month. As of early March 2026, money markets are implying only about 10 to 15 basis points of cuts for the entire year, a major shift from late 2025 when more than two full cuts were expected. This hawkish repricing, combined with traders closing out their short positions, has been the primary support for the Pound.

Key Risks And Indicators

The key reason for this shift is persistent domestic inflation, which is preventing the Bank of England from easing policy. Recent data for February 2026 showed core inflation remaining sticky at 3.8%, well above the Bank’s target, while wage growth from late 2025 continued to hover above 5%. These figures are forcing a rethink of the disinflationary trend we had anticipated. For the near term, this dynamic supports strategies that benefit from a stable or stronger Pound. Traders could consider buying near-term call options on GBP/USD to capture further upside if this trend continues. Selling cash-secured puts on GBP/EUR could also be viable for those expecting the repricing to hold. However, a significant risk to this view comes from energy prices, which have been a major driver of UK inflation. We’ve seen UK natural gas prices soften recently, trading around 70 pence per therm after the winter peak. A continued slide in these prices could ease pressure on the Bank of England and reverse the recent strength in the Pound. If energy prices do fall further, derivative traders should be prepared to pivot quickly. A sustained drop in Brent crude below $75 a barrel or natural gas below 60 pence/therm could be a signal to initiate bearish positions. This could involve buying puts on GBP or establishing bearish risk reversals to protect against a downturn. The most direct indicator to watch will be the front-end rates themselves. Any sign that the market is beginning to price in more significant rate cuts again would be the earliest warning that this short-term support for the Pound is fading. This would be the cue to unwind any long GBP positions. Create your live VT Markets account and start trading now.

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Money markets have reduced expectations for European Central Bank rate rises as energy prices fell on hopes the conflict involving Iran may end sooner than expected. Swaps now price about 22bp of ECB hikes by year-end, down from 33bp on Monday, and suggest less than a 50% chance of an increase in June. ECB Governing Council member Gediminas Šimkus said policymakers should stay calm and not overreact to events linked to Iran. He also said a deeper crisis could affect prices and growth.

Market Pricing Shifts With Geopolitical News

Georg Muller said the probability of a rate rise has increased lately, but argued against making fast decisions. The article was produced with help from an AI tool and checked by an editor. We see how quickly market expectations can shift, much like they did back in 2025. Money markets at that time correctly priced out European Central Bank tightening as energy prices fell on hopes of de-escalation in Iran. This reversal showed us how sensitive rate expectations are to geopolitical news. Today, with Eurozone inflation reported by Eurostat at 2.4% for February, the situation is less volatile but still uncertain. Brent crude has stabilized near $82 a barrel, removing the major shock factor we saw last year. This provides a more predictable backdrop for the ECB’s path, unlike the sudden shifts experienced in 2025. Unlike the debate over hikes last year, swaps are now pricing a 25 basis point rate cut by September 2026. ECB officials are emphasizing that future moves are data-dependent, focusing on wage growth figures rather than external shocks. This pivot from geopolitical reactions to internal economic data is a key change from the 2025 environment.

Options Strategy For A Surprise ECB Move

Given the current calm, we believe traders should consider buying low-cost options on short-term euro interest rate futures. The VSTOXX index, a measure of Eurozone equity volatility, is currently trading near a 12-month low of 13.5, suggesting complacency and making options relatively cheap. This strategy positions for a surprise ECB move if wage data comes in hotter than expected, a lesson learned from the rapid repricing events of 2025. Create your live VT Markets account and start trading now.

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The United States ADP Employment Change 4-week average was 15.5K as of 14 February. The previous reading was 12.8K.

Labor Market Momentum Fades

This slight uptick in the 4-week average ADP employment figure to 15.5K should be viewed with caution. The number itself represents a historically weak pace of job creation, signaling that the labor market is losing significant momentum as we move through the first quarter of 2026. This trend aligns with the pattern we observed throughout the second half of 2025. The official Non-Farm Payrolls report released last week for February confirmed this weakness, adding only 85,000 jobs while the unemployment rate ticked up to 4.1%. We are also seeing job openings in the latest JOLTS data fall below 8 million for the first time since 2022. These statistics paint a clear picture of a rapidly cooling economy. Consequently, we expect the Federal Reserve to signal a more dovish stance at its upcoming meeting. The focus will shift away from inflation towards supporting growth, making a near-term interest rate cut more likely. Market pricing now reflects this, with CME FedWatch data showing a greater than 70% probability of a 25-basis-point cut by the May meeting. For equity derivative traders, this suggests positioning for a potential ‘bad news is good news’ rally in indices like the S&P 500. Buying call spreads on the SPX with April or May expirations could capture upside from the anticipation of easier monetary policy. Volatility, as measured by the VIX, is still below 15, making option premiums relatively cheap for now. In the rates market, the clear strategy is to position for lower yields. Buying call options on Treasury futures (ZN) or going long SOFR futures for the third quarter anticipates the Fed’s policy shift. Implied yields on these contracts have already compressed, but there is still room to move if the Fed signals a full cutting cycle is beginning.

Dollar Pressure Builds

This environment is also negative for the U.S. dollar as interest rate differentials narrow against other major currencies. Traders could consider buying put options on the U.S. Dollar Index (DXY) or call options on the euro via EUR/USD futures. This play gained traction in late 2025 when the first hints of a Fed pivot emerged. Create your live VT Markets account and start trading now.

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Oil is described as the main force shaping global markets. Brent crude moved between USD83 and USD120 per barrel within 24 hours, pointing to uncertainty. Oil prices are expected to stay above pre-conflict levels. This keeps inflation concerns high and affects bonds, equities, and currencies.

High Oil For Longer Scenario

Markets are assessing a scenario where oil stays high for longer, which could reduce growth and raise inflation. The outlook depends on when the conflict ends, how shipping can pass through the Strait of Hormuz, and how much sanctioned oil may reach the market. For the medium term, lower valuations and reduced concentrated positioning are linked to a potential return of market participants if oil flows through the Strait of Hormuz return. The article notes it was produced using an AI tool and reviewed by an editor. We continue to see oil as the main driver for all markets, a lesson we learned during the extreme uncertainty of 2025. The wild swings we witnessed last year, where Brent crude moved between $83 and $120 per barrel in a single day, highlighted how sensitive assets are to energy shocks. That period of volatility tied to the Strait of Hormuz conflict remains a key reference point for current risk models. As of this week, oil prices have stabilized but remain elevated, with Brent trading around $92 per barrel, according to the latest EIA reports. This is significantly higher than levels seen before the 2025 conflict, keeping inflation concerns front and center for central banks. This persistence suggests that the market has priced in a permanent geopolitical risk premium.

Derivatives Volatility And Positioning

For derivative traders, this means implied volatility is still worth selling, even if it has come down. The CBOE Crude Oil Volatility Index (OVX) is holding near 38, well below the crisis peaks above 65 last year, but still historically high compared to the 2022-2024 average of 32. This indicates that options on oil futures remain expensive, offering opportunities for those willing to bet on continued price stability in the near term. The impact on other assets is clear, as higher energy costs are keeping inflation sticky. With the latest U.S. Core CPI for February 2026 coming in at 3.1%, the Federal Reserve has less room to maneuver, which should dampen equity market expectations. Traders should therefore watch oil price movements as a leading indicator for shifts in interest rate futures and volatility on major stock indices like the S&P 500. Looking at positioning, we see that much of the crowded speculative length from 2025 has been flushed out of the market. Recent CFTC data shows managed money net long positions are still 25% below their peaks, suggesting investors are cautious. This sets up a dynamic where any definitive good news regarding shipping routes could bring sidelined capital back in quickly, creating a sharp upward move. Create your live VT Markets account and start trading now.

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Gold prices recovered after US President Trump signalled a possible end to the war in Iran. The move was linked to lower interest-rate expectations after earlier fears that higher energy prices could lift inflation. Since the start of the war, markets had priced out one US Federal Reserve interest-rate cut by the end of the year. This shift followed concerns about inflation from rising energy costs. Commerzbank said the earlier change in rate expectations was premature. It added that central banks may not respond quickly to inflation risks that come from temporary energy price rises. The bank referred to 2022, when an energy price shock led to a stronger rise in inflation than expected. It said central banks have taken lessons from that period, but may still avoid rapid reactions. Commerzbank also noted that the US labour market is weaker. It added that political pressure on the Federal Reserve to cut rates could affect policy decisions. The bank said these factors may keep gold supported over the medium term. The article stated it was produced with help from an AI tool and reviewed by an editor. Gold is regaining ground as fears over the Iran conflict subside. This is shifting focus back to interest rate expectations, which had briefly turned hawkish. Current market pricing now shows a 65% probability of a Fed rate cut by the June meeting, a notable shift from just a month ago. We believe those hike expectations were premature anyway. While central banks learned from the 2022 energy price shock, they are unlikely to react aggressively to temporary inflation risks this time. The recent jobs report, showing a slowdown to 150,000 new payrolls and an unemployment rate of 4.1%, gives the Fed cover to remain patient. For derivative traders, this environment supports a bullish stance on gold in the coming weeks. Buying call options or establishing bull call spreads on gold futures or ETFs could capture potential upside as rate cut talk firms up. Implied volatility has come down since the geopolitical fears in late 2025, making options strategies more attractively priced. Looking back at late 2025, the market completely priced out one rate cut when energy prices spiked due to the conflict. This reaction now seems overblown, especially with the latest CPI data showing inflation cooling to 2.8%. This trend reinforces the view that the Fed’s next move is more likely to be a cut than a hike.

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