Recent geopolitical events, notably the closure of the Strait of Hormuz and surging Oil prices above $100 per barrel, have significantly impacted global currency markets and central bank policy outlooks. The British Pound (GBP/USD) experienced a sharp selloff, opening near 1.3300 and closing around 1.3220, marking a 0.65% loss on Thursday. Technical resistance remains strong, with the pair trading well below both the 50-day EMA (near 1.3400) and the 200-day EMA (around 1.3360). The Stochastic RSI sits at 73, indicating further downside potential before momentum indicators signal oversold conditions. The next major support is the 2026 low near 1.3080 set in mid-March [1].
The Bank of England's (BoE) policy outlook has shifted dramatically since the onset of the Iran war. In February, markets anticipated at least two rate cuts for 2026, with a move as early as March considered likely. The BoE had already reduced rates by 150 basis points since August 2024, bringing the Bank Rate to 3.75%, as UK inflation approached the 2% target. However, the energy shock reversed expectations, with swap markets pricing in as many as four rate hikes by mid-March, now reduced to around two. BoE staff now project CPI inflation reaching 3.5% by Q3 2026, up from a pre-war forecast of around 2% [1]. Governor Andrew Bailey cautioned that markets are "getting ahead of themselves" regarding rate hike expectations, emphasizing that the April 30 meeting will be an assessment rather than a foregone conclusion. Analysts from JP Morgan and Deutsche Bank suggest that elevated energy prices and cost pass-throughs could justify early and multiple hikes, highlighting the UK's vulnerability due to its high energy import dependence. The Ofgem price cap protects households until July, after which higher wholesale energy costs will impact consumer bills. BoE policymaker Megan Greene noted increased risks of inflation persistence due to the supply shock [1].
Meanwhile, USD/JPY is trading just below 159.60, with the US Dollar strengthening after President Trump's address ended hopes for de-escalation, pushing WTI Crude Oil up around 8% to near $110. This has led to firmer Treasury yields and diminished Fed rate cut expectations, negatively impacting the Yen. The 160.00 level is critical, as past breaches prompted Japan's Ministry of Finance (MOF) to intervene with a record $62 billion in April-May 2024, causing sharp reversals. In January 2026, speculation of stealth intervention arose when USD/JPY briefly breached 159, supported by reports of a New York Fed "rate check". Vice Finance Minister Atsushi Mimura and Finance Minister Satsuki Katayama have reiterated readiness for "decisive action" against excessive Yen depreciation. However, unlike 2024, current Yen weakness is driven by structural factors—Japan imports roughly 90% of its crude from the Middle East, and elevated Oil prices are fundamentally weakening the currency. Intervention may provide temporary relief but is unlikely to address the underlying issue [2].
Friday's March Nonfarm Payrolls (NFP) report is expected to show a rebound of +57K jobs after February's -92K loss, with weekly jobless claims at 202K (below the 212K consensus) and ADP's March print at +62K, indicating potential labor market strength. However, US equity and bond markets will be closed for Good Friday, limiting liquidity and potentially amplifying volatility in currency markets [2].
CONCLUSION
The surge in Oil prices and geopolitical tensions have triggered significant volatility in GBP/USD and USD/JPY, forcing central banks to reconsider their policy paths. The Bank of England faces renewed inflation risks and market expectations for rate hikes, while Japan's authorities are poised for intervention as the Yen weakens structurally. Market sentiment is negative, and the impact is high, with further volatility likely as key economic data and policy decisions unfold.