A wave of central bank decisions and escalating geopolitical tensions have triggered significant repricing across global financial markets. Major central banks, including the Federal Reserve (Fed), Bank of Japan (BoJ), Swiss National Bank (SNB), Bank of England (BoE), Bank of Canada (BoC), and European Central Bank (ECB), kept interest rates unchanged, while the Reserve Bank of Australia (RBA) raised rates, citing persistent inflation risks from surging oil and energy prices amid the ongoing US-Israel war with Iran [1][4]. This has led markets to increasingly price in a 'higher-for-longer' interest rate environment, with expectations for Fed rate cuts now pushed out as far as 2026, and the ECB and BoE now seen as likely to hike rates at least twice by year-end [1][4][9].
The impact has been pronounced in government bond markets, particularly in the UK, where 10-year gilt yields surged to 4.933%, their highest since the 2008 financial crisis, and 2-year yields climbed to 4.513%, the highest in over a year. This sharp move—68 basis points higher for 10-year gilts and 97 basis points for 2-year gilts since the Iran conflict began—reflects investor fears of resurgent inflation and a rapid unwinding of rate cut expectations for the BoE. Markets now price a near 0% chance of a BoE rate cut this year, with a rate hike expected as soon as next month [9]. The ECB, for its part, is now fully priced for a hike by July, with some analysts suggesting a move as early as April, and ECB officials signaling readiness to act if inflation persists [4].
Gold (XAU/USD) has come under sustained pressure, falling to its lowest level since early February near $4,500 and trading around $4,620, down over 10% since the US-Israel war with Iran erupted. The metal has struggled as higher yields and a stronger US Dollar (USD) increase the opportunity cost of holding non-yielding assets, and as investors liquidate gold-backed ETFs. Despite its traditional role as a safe haven, gold has failed to attract demand amid the current inflation and rate outlook, though some analysts, such as OCBC’s Christopher Wong, maintain that the medium-term structural backdrop remains supportive [1][8].
Currency markets have seen the USD regain broad strength, particularly against the Japanese Yen (JPY), with USD/JPY rebounding to 158.70, up 0.61% on the day. The US Dollar Index (DXY) has also moved higher, reflecting renewed demand for liquidity and safe assets. The Canadian Dollar (CAD) has outperformed G10 peers, supported by narrowing yield spreads and expectations for further BoC tightening, while EUR/GBP edged higher as markets reassess the relative inflation and rate outlooks for the Eurozone and UK [2][3][4][5][6].
Oil prices have been volatile, with Brent briefly surging toward $120/bbl after Iranian attacks on energy infrastructure, before easing as US officials signaled supply support and Israel suggested de-escalation. OCBC now expects Brent to hold near $100/bbl through mid-year, with risks skewed to the upside if shipping disruptions persist [7].
Fed Governor Christopher Waller emphasized that while underlying inflation may be close to the Fed’s 2% target, persistent high oil prices could have a lasting impact on inflation, warranting caution before considering rate cuts. He stated there is no need to consider rate hikes at this point, but the Fed will wait and see how inflation evolves before making decisions on rate cuts later in the year [1][5].
CONCLUSION
Markets are rapidly repricing for higher and more persistent inflation, with central banks expected to keep or raise rates in response to energy-driven price shocks. This has driven bond yields sharply higher, pressured gold, and strengthened the US Dollar, while oil remains volatile. The outlook remains highly sensitive to further geopolitical developments and central bank policy signals.