Central banks are monitoring possible second-round effects linked to recent Gulf developments, rather than making immediate policy changes. Market attention is on how policymakers assess the wider economic consequences of events in the Gulf.<\/p>\n
Bank of England Governor Andrew Bailey has softened the more hawkish tone he used at the last policy meeting. The Bank\u2019s Chief Economist Huw Pill is expected to repeat that the main focus is on second-round effects.<\/p>\n
At the European Central Bank, Chief Economist Philip Lane has said that clear effects from the war are not yet visible. As a result, any shift in policy messaging is likely to be delayed.<\/p>\n
The report says it is too early for second-round effects to appear, so it is also too early for central banks to signal a change in stance. It adds that central bank commentary, alongside Gulf news, is shaping current market discussion.<\/p>\n
The article notes it was produced with the help of an artificial intelligence tool and reviewed by an editor.<\/p>\n
Central banks in Europe are signaling they will look through the immediate energy price shock from recent Gulf developments. They are instead waiting to see if higher energy costs translate into broader inflation, which we call second-round effects. This suggests a period of inaction, reducing the odds of surprise interest rate hikes in the near term.<\/p>\n
For traders focused on UK markets, this represents a notable shift. After the recent spike in Brent crude to over $100 a barrel, pricing for a Bank of England rate hike by June had jumped; however, those odds have now receded below 30% following the recent comments. The central bank appears more concerned with the UK’s fragile GDP growth, which was just 0.2% in the last quarter.<\/p>\n
This official guidance toward stability suggests that implied volatility on short-term interest rate derivatives, like SONIA futures, is likely overpriced. We’ve seen bond market volatility ease, with the MOVE index pulling back to 98 from its recent high of 115. Selling options strategies that profit from range-bound price action could therefore be advantageous over the coming month.<\/p>\n
The European Central Bank is following a similar playbook, which is a pattern we also observed in 2025 when they were slow to react to supply chain issues. With Eurozone core inflation falling to 2.7% in March 2026, policymakers have room to wait for more data before committing to any change. This reinforces the view that they will tolerate a temporary headline inflation spike without immediately tightening policy.<\/p>\n
This divergence in tone, especially if the US Federal Reserve remains hawkish, could pressure European currencies. The recent dip in the EUR\/USD from 1.09 to below 1.07 could continue if rate differentials widen. Derivative strategies that bet on limited upside for both the euro and British pound appear prudent for the second quarter.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Central banks watch Gulf spillovers and second-round effects, delaying policy shifts as Bailey and Lane temper tone.<\/p>\n","protected":false},"author":38,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[46],"tags":[],"class_list":["post-45284","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":[],"aioseo_notices":[],"featured_image_src":null,"featured_image_src_square":null,"author_info":{"display_name":"josephine","author_link":"https:\/\/www.vtmarketsglobal.com\/en\/author\/josephine\/"},"_links":{"self":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts\/45284","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/users\/38"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/comments?post=45284"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts\/45284\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/media?parent=45284"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/categories?post=45284"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/tags?post=45284"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}