High Oil, Limited Relief (30 March-3 April)

Energy tension continues to influence price behavior across currencies, commodities, and bond markets.

The dollar held near 100, supported by firm oil prices and scaled-back expectations for rate cuts. Crude surged above $111, keeping inflation risks in focus and pushing yields to multi-year highs in the US, UK, Japan, and Germany.

Gold and silver recovered but remain sensitive to developments around the Strait of Hormuz. Economic data showed steady US labor conditions, cooling inflation in Japan, improving US factory activity, and persistent underlying price pressure in the UK.

Currencies

Dollar Index: The dollar index held near 100, on track for a weekly gain of about 0.3%, supported by ongoing concerns around the Iran conflict, higher oil prices, and their implications for inflation and growth. President Trump’s 10-day pause on strikes targeting Iranian energy facilities, extending the deadline to April 6, has done little to ease tension. Reduced expectations for Fed rate cuts, along with dollar strength against the pound and the franc, reflect persistent economic pressure.
Euro: The euro slipped to around $1.152 as markets considered the latest US–Iran developments, including the extension of negotiations to April 6. Germany’s Foreign Minister Wadephul confirmed indirect discussions and upcoming direct meetings in Pakistan, though confidence in a quick resolution remains limited. Spain’s inflation reached 3.3% in March, the highest since June 2024. Markets now price in at least two ECB rate increases this year, with a strong probability of a third, replacing earlier expectations of a 2026 rate cut.
British Pound: The British pound drifted toward $1.33 as domestic data shaped sentiment. Tehran rejected US demands while Germany confirmed planned talks in Pakistan, leaving the outlook uncertain. UK retail sales fell 0.4% in February, and consumer confidence dropped to a near one-year low. At least two Bank of England rate increases are expected this year, with a possible third, reversing earlier expectations of easing.
Japanese Yen: The Japanese yen steadied near 159.5 per dollar on Friday, remaining close to the 160 level that triggered intervention in 2024. Finance Minister Satsuki Katayama signaled readiness to act as rising energy prices linked to Middle East developments continue to strain Japan’s oil-dependent economy. Authorities are also monitoring commodity markets, including crude oil futures, while uncertainty around a potential US–Iran agreement keeps sentiment cautious.

Commodities

Gold Reclaims $4,500 as Deadline Moves

Gold moved back above $4,500 per ounce, recovering from a sharp drop in the previous session after President Trump postponed his deadline for Iran to reach a war-ending agreement. He committed to avoiding strikes on Iranian energy facilities until April 6 and noted that Iran allowed 10 tankers to pass through the Strait of Hormuz. Iran nevertheless rejected the US 15-point plan, leaving metals exposed to continued pressure from regional tension, higher energy costs, and persistent inflation risks.

Brent Jumps as the Strait Turns Critical

Brent crude surged beyond $111 per barrel, reaching its highest level since June 2022, following renewed disruptions in the Strait of Hormuz. Although President Trump extended the strike deadline to April 6, skepticism remains as the Pentagon weighs deploying up to 10,000 additional troops. Iran’s Revolutionary Guard issued warnings after incidents involving Chinese and Thai vessels, while the effective closure of the waterway continues to disrupt roughly one-fifth of global oil flows, keeping prices high and sentiment cautious.

Silver Recovers, Momentum Fragile

Silver climbed to around $70 per ounce, rebounding from heavy losses in the previous session after the extension of the diplomatic deadline with Iran.

Fixed Income

US 10 Year Treasury Note Yield: The US 10-year Treasury yield climbed to 4.48%, its highest since July 2025, before easing to 4.42%. Investors remain wary of the Iran conflict’s impact on inflation and growth, with oil near 2022 highs. Despite Trump’s 10-day pause on strikes until April 6, concerns persist over a military buildup, while expectations for Fed rate cuts in 2026 have been scaled back.
UK 10 Year Bond Yield: The UK 10-year gilt yield jumped above 5%, its highest since July 2008, set to finish March up over 75 basis points. Rising energy prices from the Iran conflict and a sharp shift in Bank of England expectations, from two cuts to two or three hikes in 2026, fueled the move. Unclear signals from Washington and Tehran weighed on sentiment, while UK retail sales fell 0.4% and consumer confidence hit a near one-year low.
Japan 10 Year Government Bond Yield: Japan’s 10-year government bond yield rose to around 2.37%, its highest since 1999, driven by oil-related inflation pressures from the Middle East conflict. The weaker yen and rising energy costs reinforced expectations of a near-term Bank of Japan rate hike. With the BOJ holding rates steady last week but signaling a tightening bias, analysts now price in a possible 25bps increase to 1% at the April 28 meeting, with high oil prices and ongoing US-Iran tensions.
Germany 10-Year Bond Yield: Germany’s 10-year Bund yield climbed above 3.1%, its highest since May 2011, set to finish March nearly 50bps higher. Rising energy prices from the Iran conflict and a shift in ECB expectations, from cuts to at least two hikes, possibly three, drove the move. Despite confirmed talks between Germany and Iran, market skepticism remains, while Spain’s March HICP inflation surged to 3.3%, highlighting growing European inflationary pressures.

Economic Data

United States Initial Jobless Claims

US initial jobless claims increased by 5,000 to 210,000 in the third week of March, in line with expectations and still below last year’s average. Continuing claims declined by 32,000 to 1,819,000, the lowest level since May 2024, pointing to steady labor market conditions. The data contrasts with February’s softer employment report, which reflected slower hiring linked to reduced immigration. Claims from federal employees edged down to 584, suggesting limited spillover from government shutdown disruptions.

Japan Inflation Rate

Japan’s annual inflation slowed to 1.3% in February 2026, the lowest reading since March 2022, down from 1.5% in January. Price increases for food, transport, and clothing moderated, while energy and education costs declined sharply. Core inflation eased to 1.6%, falling below the Bank of Japan’s 2% target for the first time since March 2022. On a monthly basis, CPI dropped 0.2%, marking a third consecutive decline despite modest gains in household goods, communications, and recreation.

United States Manufacturing PMI

The S&P Global US Manufacturing PMI rose to 52.4 in March 2026, up from 51.6 in February and above the 51.3 forecast. Output and new orders strengthened, supported by easing tariffs and precautionary stockpiling tied to Middle East developments. Employment growth softened and supplier delays lengthened, while both input and output costs increased. Business confidence reached a 13-month high, reflecting resilient domestic demand and more stable export conditions.

United Kingdom Inflation Rate

UK annual inflation remained at 3% in February 2026, matching January and market expectations. Clothing prices rose 0.9%, while housing and utility costs edged up to 4.6%. Price pressures eased in transport, food, recreation, and services, supported by lower petrol costs. On a monthly basis, CPI increased 0.4%, reversing January’s 0.5% decline. Core inflation rose slightly to 3.2% from 3.1%, indicating persistent underlying price pressure.

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