The United States Personal Consumption Expenditures (PCE) Price Index rose by 0.4% month on month in February. This matched the forecast of 0.4%.

The release reports the monthly change in consumer prices based on the PCE measure. It is used to track inflation trends over time.

Inflation Remains Sticky

The February Personal Consumption Expenditures data, coming in as expected at 0.4%, is now old news. Since the market had already priced this in, we saw little immediate reaction, and our focus must now shift to fresher data. The key takeaway is that inflation is not cooling as fast as many had hoped.

More importantly, the March jobs report released last week showed the economy added over 280,000 jobs, a sign of persistent economic strength. This robust labor market, combined with the sticky inflation seen in the February PCE report, complicates the Federal Reserve’s path forward. We believe this makes the case for imminent rate cuts much weaker.

As a result, we are seeing market probabilities for a rate cut in June fall below 50%, a significant drop from just a few weeks ago. Traders in interest rate futures and swaps should adjust for a “higher for longer” scenario, potentially unwinding bets on aggressive easing this summer. The yield on the 2-year Treasury, highly sensitive to Fed policy, has reflected this by climbing back above 4.70%.

This growing uncertainty is causing implied volatility to rise, with the VIX index creeping up from its lows and settling around 16. This suggests options strategies that profit from price swings, such as long straddles or strangles around the next CPI release and FOMC meeting, could be advantageous. We are essentially paying for the market’s indecision on the Fed’s next move.

Lessons From Recent History

Looking back, we saw a similar pattern in late 2025 when initial optimism for rate cuts was dampened by a string of stubborn inflation reports. That period taught us that the final stretch of getting inflation down to 2% is the most difficult. History suggests we should be wary of positioning for rate cuts too early.

Create your live VT Markets account and start trading now.

BNY’s Bob Savage reported that Reserve Bank of New Zealand (RBNZ) Governor Anna Breman indicated the bank is prepared to raise interest rates if core inflation starts to accelerate. She referred to upside inflation risks linked to higher fuel prices and tensions in the Middle East.

Breman said the RBNZ will “act decisively” with rate hikes if core inflation shows signs of picking up. She said policymakers are watching core inflation, wage growth and inflation expectations more closely than headline prices.

Rbnz Signals Readiness To Tighten

She repeated the RBNZ goal of returning inflation to its 1–3% target range. She also said growth may be weaker in the near term, but the economy is still expected to expand this year, with uncertainty remaining high.

The Reserve Bank of New Zealand is signaling it will act decisively if core inflation accelerates, putting an interest rate hike back on the table. Recent data showing quarter-on-quarter core inflation at 0.9% for Q1 2026 makes this threat credible, annualizing well above the target band. This hawkish stance, tied to Middle East tensions keeping Brent crude near $95 a barrel, creates a clear divergence from other central banks that are on hold.

We should therefore consider positioning for a stronger New Zealand dollar, as the prospect of higher rates will attract capital. The Kiwi has already strengthened toward 0.6350 against the US dollar, and call options could offer a leveraged way to play further upside toward the 0.6500 level. However, we must remain mindful of global risk sentiment, which could temper enthusiasm for commodity currencies.

The signal for higher yields means we should also look at the front end of the interest rate curve. The 2-year New Zealand Government Bond yield has already pushed above 5.10%, and positioning for further increases through interest rate swaps or by shorting bond futures seems prudent. This strategy anticipates the market pricing in at least one full rate hike before the end of the third quarter.

Volatility Strategies And Event Risk

Given the elevated uncertainty, options that profit from increased price swings are attractive. Buying straddles on NZD/USD or on interest rate futures would allow us to profit from a large move in either direction. This is a practical response to a central bank that is talking tough but has not yet acted.

This is a significant shift from the policy we saw through most of 2025, where the RBNZ was content to wait and see. The focus now is clearly on upside inflation risks, making the upcoming May policy meeting a critical event. We should expect volatility to increase as the market digests the potential for the RBNZ to be the first major central bank to resume a hiking cycle.

Create your live VT Markets account and start trading now.

Mexico’s 12-month inflation rate in March was 4.59%. This was below expectations of 4.61%.

The data points to a smaller year-on-year rise in prices than forecast. No further figures were provided in the update.

The March inflation number coming in at 4.59%, just under the 4.61% we were looking for, reinforces the disinflationary trend. This gives Banxico, Mexico’s central bank, more flexibility in its monetary policy decisions. We believe this increases the probability of another interest rate cut at their next meeting in May.

Looking back, this follows the pattern we saw throughout 2025 when the central bank cautiously initiated its easing cycle with 25 basis point cuts. Back then, inflation was also trending down from its post-pandemic peak, but the bank remained hesitant to cut aggressively. This new data point could embolden the more dovish members of the board to continue the cycle.

For derivative traders, this suggests a potential weakening of the Mexican Peso against the U.S. dollar. The “carry trade,” which benefited from high Mexican interest rates and saw the USD/MXN exchange rate dip below 17.00 for parts of 2025, is becoming less attractive as the interest rate differential narrows. We are looking at long positions in USD/MXN call options as a way to profit from a potential upward move in the exchange rate.

The market for TIIE interest rate swaps is already pricing in about 75 basis points of cuts for the remainder of 2026. This inflation print may cause traders to increase their bets on a more rapid easing cycle, potentially pushing those expectations closer to 100 basis points. This could involve positioning in TIIE futures to bet on falling short-term interest rates.

On the equity side, a more accommodative central bank is typically bullish for the local stock market. With Mexico’s GDP growth holding steady around 2.4% according to recent government estimates, lower borrowing costs could spur further investment. Buying call options on key Mexican stock market ETFs could be a capital-efficient way to gain exposure to this potential upside.

Mexico’s headline inflation in March came in below forecasts. The forecast was 0.88%, while the actual figure was 0.86%.

The data compares expected inflation with the reported result for the month. The gap between the two figures is 0.02 percentage points.

We are seeing March inflation come in slightly cooler than the market expected. This small miss reduces the immediate pressure on Banxico to accelerate its interest rate cutting cycle. The market can now feel more confident that the central bank will remain cautious.

This reinforces the appeal of the Mexican Peso carry trade, where traders profit from the interest rate difference between Mexico and other countries. With Banxico’s policy rate at a high 10.00% and the US Fed Funds rate sitting closer to 4.5%, the yield for holding pesos remains highly attractive. This favorable data gives traders a green light to continue holding or initiating long Peso positions through currency forwards.

In the options market, this expected stability should push down implied volatility for the USD/MXN pair. Selling out-of-the-money puts on the Mexican Peso looks like a viable strategy to collect premium, as the currency is now less likely to suffer a sudden drop. This view is supported by the exchange rate which has strengthened below 16.40 pesos per dollar this week.

Looking back, we remember how Banxico maintained a very hawkish and careful stance throughout 2025, even as inflation showed signs of easing. Today’s figure suggests that exact same cautious approach will continue well into this year. Derivative traders should not price in aggressive cuts but instead focus on a slow and predictable path for interest rates, likely sticking to 25 basis point increments.

Mexico’s core inflation came in at 0.38% in March. This was below forecasts of 0.4%.

The update compares the actual figure with the expected figure. No further data was provided in the text.

The report is attributed to the FXStreet Team. The team is described as economic journalists and FX specialists who produce and oversee FXStreet content.

The March core inflation print of 0.38% came in just shy of the 0.4% we were all watching. This small miss is significant because it reinforces the view that disinflation in Mexico is on track. It gives Banxico, Mexico’s central bank, a green light to continue its rate-cutting cycle from the current 9.00% level.

This data should put modest pressure on the Mexican Peso in the near term. We should consider strategies that benefit from a weaker peso, such as buying call options on the USD/MXN pair. With the spot rate hovering near 17.50, targeting strikes in the 17.90-18.10 range for the coming months could provide good value.

For interest rate traders, this inflation reading makes bets on lower rates more attractive. We can express this view by positioning in TIIE interest rate swaps, anticipating that the market will price in a faster pace of cuts. This is similar to the pattern we saw back in early 2024 when the central bank began its easing cycle after inflation showed consistent signs of cooling.

Lower interest rates are also a positive signal for Mexican stocks. This environment makes it cheaper for companies to borrow and invest, potentially boosting the IPC stock index. We believe buying call options on broad Mexico-focused ETFs is a straightforward way to gain exposure to this potential upside.

The key will be to watch for confirmation in the next round of data and in Banxico’s communications. While the direction seems set for lower rates and a softer peso, the pace is still uncertain. This suggests that implied volatility in peso options might decrease, as the central bank is now less likely to deliver a hawkish surprise at its next meeting.

NZD/USD rose 0.2% to about 0.5835 in European trading on Thursday. The move followed confirmation from the US and Iran that they will send teams to Pakistan for initial talks on a 10-point peace proposal.

The White House said President Donald Trump will send a team led by Vice President JD Vance to Pakistan on Saturday. Iran’s ambassador Reza Amiri Moghadam also said a team would travel at night for the first round of talks.

Geopolitical Developments And Market Reaction

Moghadam said the US breached parts of the 10-point plan, and referred to Israel attacking Iran-backed Houthis in Lebanon. Market conditions stayed mildly risk-averse, with S&P 500 futures down 0.4% in European trade and the US Dollar Index near 99.00.

In technical terms, NZD/USD held above the 20-day EMA at 0.5796, keeping a mild upward bias. The 14-day RSI moved back into the 40.00–60.00 range, while support is seen at 0.5796 and then 0.5753, with resistance near 0.5900.

The Reserve Bank of New Zealand targets inflation between 1% and 3%, with a 2% mid-point. China’s role as New Zealand’s biggest trading partner and dairy export prices can also affect NZD movements.

Given the de-escalation between the US and Iran, we are seeing a classic risk-on move favoring the New Zealand dollar. With the NZD/USD pair pushing above its 20-day moving average to 0.5835, there is a clear short-term bullish signal. This presents an opportunity for traders to position for further upside in the coming weeks.

A straightforward approach would be to buy NZD/USD call options with an expiration in late April or early May. This allows us to capitalize on a potential rally toward the March high of 0.5900, while limiting our downside risk to the premium paid. The current shift in the Relative Strength Index further supports this view of a bullish reversal gaining momentum.

Options Strategy And Supporting Fundamentals

This bullish sentiment is not just based on geopolitics; it is backed by fundamental data supporting the Kiwi. China’s latest Caixin Manufacturing PMI, released last week, came in at 51.4, marking the sixth consecutive month of expansion and signaling strong demand for New Zealand’s exports. We’ve also seen consistent strength in the Global Dairy Trade index, which posted a 2.8% gain in its most recent auction, directly boosting New Zealand’s terms of trade.

Furthermore, the interest rate differential between the two countries remains a powerful driver for the pair. The Reserve Bank of New Zealand is expected to hold its Official Cash Rate at 5.5% while the US Federal Reserve has signaled it is closer to an easing cycle. We saw how this dynamic created sustained upward pressure on the pair during a similar period in the summer of 2025.

However, we must remain cautious as the situation is fragile and market sentiment could turn quickly if the talks falter. S&P 500 futures are already slightly down, indicating that not all market participants are convinced. We only have to look back to the initial Red Sea disruptions in late 2024 to remember how quickly implied volatility can spike, causing a flight to the safety of the US dollar.

For those wary of taking a purely directional bet, purchasing a straddle by buying both a call and a put option could be a prudent strategy. This position would profit from a significant price move in either direction, whether the talks lead to a sustained peace-driven rally or collapse into a risk-off panic. This approach effectively allows us to trade the uncertainty of the event itself.

Create your live VT Markets account and start trading now.

The US Dollar edged up against the Swiss Franc on Thursday and held above 0.7900 after rebounding from 0.7870. Risk appetite stayed muted as the Iran ceasefire showed strain, which supported demand for the US Dollar.

Soon after the ceasefire was announced, Iran closed the Strait of Hormuz. Iran said Israel broke parts of the proposal with an attack on Lebanon that killed more than 180 people.

Ceasefire Risks And Market Reaction

Israel and the US said operations against Hezbollah in Lebanon are not covered by the agreement. US President Trump warned of further action if Tehran does not comply.

The US and Iran said they will send delegations to peace talks in Pakistan on Saturday. Markets remained cautious as hostilities could resume.

In the US, minutes from the latest Federal Reserve meeting showed a balanced approach. Rate cuts remain possible, while some officials discussed tighter policy if inflation stays above the 2% target for a long time.

Later Thursday, the US PCE Prices Index is due, ahead of Friday’s CPI. The CPI will show March data, seen as more relevant because it reflects the impact of the war.

Key Data And Volatility Outlook

In Switzerland, the March unemployment rate stayed at 3%. The Swiss calendar has otherwise been quiet this week.

The current fragility of the Iran ceasefire points directly to higher market volatility in the coming weeks. We are seeing this reflected in the CBOE Volatility Index (VIX), which has climbed above 25, a level not sustained since the banking sector concerns we saw in late 2025. This environment suggests buying options to define risk is more prudent than taking outright futures positions.

The closure of the Strait of Hormuz is a critical development for global energy, and derivative markets are pricing this in. We saw West Texas Intermediate (WTI) crude futures for May delivery jump nearly 5% on the initial news, reminiscent of the supply shocks from early 2022. Traders should be looking at call options on oil to hedge against, or speculate on, a further escalation impacting supply chains.

This Friday’s US Consumer Price Index (CPI) is the next major hurdle, with markets highly sensitive to inflation data. Consensus forecasts are for a headline number around 3.6%, which would confirm that inflation remains sticky and complicates the Federal Reserve’s path to cutting rates. A straddle or strangle on a broad market index ETF could be an effective way to play the expected price swing following the release, regardless of direction.

The US Dollar is benefiting from both safe-haven flows and the potential for a more hawkish Fed. For the USD/CHF pair, this creates clear upward pressure, even with the Franc’s own safe-haven status being a factor. Buying call options on USD/CHF offers a defined-risk way to position for a break higher if Middle East tensions persist or US inflation surprises to the upside.

Create your live VT Markets account and start trading now.

Japan’s Ministry of Finance cross-border data shows Japanese investors were major net sellers of foreign bonds in March. The activity was linked to the wider bond market sell-off that month.

Japanese investors sold JPY 3,757bn of foreign bonds in March, after selling JPY 3,422bn in February. This totals JPY 7,179bn over two months, described as a record net sale for the period.

Drivers Of The Record Foreign Bond Selling

The selling was largely attributed to banks and life insurers. Factors cited include fiscal year-end positioning and a higher-than-expected USD/JPY level alongside a strong rally, which supported profit-taking.

Attention now turns to whether foreign bond buying returns as the new fiscal year begins. Future flow data will be used to judge if demand shifts towards Japan’s domestic bond market, including JGBs, although there was stated to be limited evidence of a move towards JGBs at the time.

We have seen that Japanese investors were huge sellers of foreign bonds in February and March, unloading a record amount to close out the fiscal year. This selling was likely driven by the need to take profits on a very high USD/JPY and rebalance portfolios. The critical question now, at the start of the new fiscal year, is whether this money will return to foreign markets or stay home.

This situation is different from past years because domestic options are now more attractive. The Bank of Japan officially ended its negative interest rate policy last month, and with core inflation holding stubbornly above 2%, yields on Japanese Government Bonds (JGBs) are rising. Current 10-year JGB yields are hovering near 1%, a level unseen for over a decade, providing a viable alternative to foreign bonds for the first time in years.

What To Watch In Yen Rates And Options

For derivative traders, this creates a major potential inflection point for the yen. If Japanese funds decide to buy JGBs instead of US Treasuries, it would mean sustained demand for JPY and could pressure USD/JPY lower. The weekly flow data from the Ministry of Finance will be the most important indicator to watch for signs of this shift.

This creates an opportunity in the options market, as uncertainty about these massive flows is rising. Implied volatility for USD/JPY has been creeping up, suggesting the market is pricing in a larger-than-usual move in the coming weeks. Traders could consider strategies that benefit from a significant directional shift, as the period of steady yen weakness may be challenged.

Looking back at this time in 2025, we saw a similar pattern of heavy year-end selling, which was followed by hesitant buying as the new fiscal year began. However, the key difference today is the credible policy shift from the Bank of Japan, making domestic recycling of funds a much stronger possibility. The current USD/JPY spot rate, which remains elevated above 158, also makes unhedged foreign investing look expensive and risky.

Create your live VT Markets account and start trading now.

Commerzbank expects Poland’s National Bank of Poland (NBP) to keep interest rates unchanged after an energy price shock linked to the conflict in Iran disrupted the rate-cutting cycle that ran until last month. It says the wider analyst consensus also forecasts steady rates over the medium term.

The report says oil prices are unlikely to return to previous levels quickly, which limits scope for easing. It adds that rate cuts are not expected unless oil falls below $70 per barrel, which it does not currently forecast.

Policy Outlook Under Energy Shock

It states that government emergency economic measures, such as fuel price caps, are likely to remain in place for now. It also says these measures can distort price signals that normally guide monetary policy.

Commerzbank says monetary policy is now responding to a geopolitical shock that is partly shaped by fiscal mitigation, rather than normal economic cycles. As a result, it expects the NBP to stay on hold under current conditions.

The energy price shock stemming from the recent conflict in Iran has completely altered the landscape for Poland’s monetary policy. We have seen the National Bank of Poland’s easing cycle, which was active until just last month, come to an abrupt halt. This is supported by the latest GUS data for March 2026, which showed headline inflation re-accelerating to 5.1%, driven by soaring fuel costs.

As a result, we are watching a significant repricing in Polish interest rate derivatives. Forward Rate Agreements that were pricing in at least 50 basis points of cuts in early 2026 have now reversed, showing no easing expected for the rest of the year. The market now firmly expects the NBP to hold its policy rate steady at 5.25% for the foreseeable future.

Market Positioning And Watch Levels

Monetary policy is now directly linked to the price of Brent crude, which is currently trading around $98 per barrel. This reactive stance reminds us of the situation back in 2022, when central banks globally were forced to respond to external energy shocks. In this environment, traders should not anticipate any dovish pivots from the central bank.

This suggests that positioning for Polish interest rates to stay elevated is the most logical approach. Strategies could include receiving fixed on Polish interest rate swaps or selling out-of-the-money payer swaptions to bet against rate hikes. While the Zloty is volatile, the hawkish NBP is providing a floor for the EUR/PLN exchange rate, keeping it anchored near the 4.35 level.

The key signal to watch for a change in this outlook would be a sharp drop in oil prices. We will not see rate cuts back on the table unless Brent crude were to fall decisively below the $70 per barrel threshold. Until such a geopolitical de-escalation occurs, policy will remain on hold.

Create your live VT Markets account and start trading now.

Pound Sterling traded a little lower on Thursday, near 1.3400 against the US Dollar during the European session. Trading was subdued as sentiment turned more cautious after a ceasefire announcement in the Middle East on Wednesday.

S&P 500 futures fell 0.2% to about 6,770 in European trade, while the US Dollar Index rose slightly to near 99.10. Markets weighed uncertainty over the durability of a two-week US-Iran truce.

Market Sentiment Shifts

Concerns increased after Israel continued attacks on Iran-backed Houthis in Lebanon. Reuters reported the Israeli Defense Forces killed Ali Yusuf Harshi, described as the personal secretary and nephew of Hezbollah Secretary-General Naim Qassem.

Iran’s parliament speaker and chief negotiator, Mohammad Bagher Qalibaf, accused the US of breaking the first clause of a 10-point proposal in a post on X. The clause called for “an immediate ceasefire everywhere, including Lebanon and other regions, effective immediately”.

The US and Iran said they will send teams to Pakistan for the first round of talks on the 10-point peace plan. In the UK, traders looked for new signals on the Bank of England outlook as shifting inflation expectations could change interest rate bets.

We recall the market’s cautious mood in April 2025, with a fragile Middle East ceasefire keeping everyone on edge. Back then, fears of high energy prices had us betting on more Bank of England rate hikes, pushing GBP/USD to 1.3400. That entire narrative has now completely flipped over the past year.

Central Bank Policy Divergence

With the de-escalation holding, energy prices stabilized, and UK inflation has fallen back towards the target, recently reported at 2.4% for March 2026. This has shifted the focus entirely towards BoE rate cuts, with markets now pricing in at least two cuts before the end of the year. Consequently, we’ve seen the Pound weaken significantly from those 2025 highs, trading now near 1.2550.

On the other side of the trade, the US economy remains robust, with the latest Non-Farm Payrolls report for March 2026 showing a stronger-than-expected gain of 275,000 jobs. This persistent strength gives the Federal Reserve little reason to rush into cutting rates, keeping the US Dollar well-supported. This divergence in central bank policy is the key driver for derivative strategies in the coming weeks.

Given this clear policy divergence, selling sterling strength through call options or establishing bearish positions on GBP/USD futures appears logical. The market’s fear gauge, the VIX index, is currently hovering near a relatively calm 15, a stark contrast to the risk-averse jitters we saw in 2025. This suggests options are not excessively expensive for positioning for further pound weakness against the dollar.

Create your live VT Markets account and start trading now.