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In a week that has been circled on calendars for months, the world’s four most closely watched central banks met in the same seven-day window for the first time since December 2021. The United States (US) Federal Reserve (Fed), the Bank of Japan (BoJ), the Bank of England (BoE), and the European Central Bank (ECB) each faced its own domestic decision and all four reached the same conclusion: hold! The thread connecting every decision was oil. With Brent crude trading above $100/barrel for the second consecutive week, inflation outlooks have shifted materially, and rate-setters across the G7 are now navigating a tension between energy-driven price pressure and the drag that elevated energy costs will impose on growth.
Federal Reserve
The Federal Open Market Committee wrapped up its two-day meeting on 18 March, voting to keep the federal funds rate unchanged in the 3.50% and 3.75% range. The decision was the second consecutive hold following three quarter-point cuts in 2025, and it surprised nobody. What the market was listening for was tone, and Fed Chair, Jerome Powell, delivered something closer to a hawkish pause than a neutral one. Powell acknowledged that inflation assessments have become “highly uncertain” in the context of the Iran conflict and the resulting surge in energy costs – language that effectively pushes out the timing of the next cut. The updated dot plot still carries a pencilled-in reduction later this year, but the distribution of views on the committee has widened and the bar for action has clearly risen. The meeting, was also one of Powell’s last, with his term as Fed Chair expiring on 15 May, and Kevin Warsh waiting in the wings to take over. The prospect of a leadership transition, and the possibility of a more dovish successor, keeps risks to US policy alive heading into the second quarter.
Bank of Japan
The BoJ held its benchmark rate at 0.75% on Thursday, a move that was widely anticipated. The BoJ remains the outlier in the current global landscape – the only major central bank in a tightening mode, albeit a deliberate one. The base case heading into 2026 had Tokyo nudging rates toward 1.00% before year-end, supported by above-trend growth and inflation holding around 2%. That path is now less certain. Higher energy prices are a complicated input for Japan as they stoke import costs and dampen consumer spending but also support the reflationary narrative the BoJ has spent years building. The yen remains the immediate pressure point. The yen/dollar exchange rate has drifted back above ¥159/$, and intervention risk from the Ministry of Finance is rising again. Any surprise in BoJ communication at this stage – even a nuanced shift on the pace of normalisation – carries the potential to produce large moves in the yen.
Bank of England
Prior to the eruption of the US-Israel strikes on Iran in late February, a 25-basis point cut from the BoE at this meeting had been close to a consensus call. That expectation has been unwound. The United Kingdom’s (UK’s) Monetary Policy Committee (MPC) voted unanimously to hold rates at 3.75% on Thursday, citing the material increase in global energy triggered by the Middle East conflict. UK headline Consumer Price Index (CPI) inflation came in at 3.0% in January, and the reopening of energy inflation risks have made further easing analytically difficult. UK unemployment has also risen to 5.2% – a 10-year high – and gross domestic product (GDP) growth is flat, which means the MPC is sitting with the exact stagflationary combination it hoped to avoid. The committee’s internal divisions remain: a five to four split in favour of a hold at the February meeting indicates the doves have not abandoned their case, but until there is greater clarity on the duration and inflationary impact of the conflict, the majority view is to wait. The market has pushed out rate cut expectations significantly, and some analysts now predict that if energy prices remain elevated through mid-year, the next rate-cut move could be deferred to 2027.
European Central Bank
The ECB held its deposit rate at 2.00% on Thursday – the sixth consecutive meeting without a move. The European Union (EU) was already in what ECB President, Christine Lagarde, had described as “a good place” heading into this week: eurozone inflation was in scope, unemployment was low, and the growth backdrop, while modest, was stable. The Iran conflict has complicated that picture. European natural gas prices surged approximately 25% to above €68/megawatt-hour (MWh) by mid-week – their highest level in more than three years – following Iranian missile strikes on regional energy infrastructure, including Qatar’s Ras Laffan liquid natural gas (LNG) complex, which supplies roughly one-fifth of global LNG. Updated ECB staff projections, released Thursday, revised the EU’s headline inflation forecast to 2.6% for 2026, up from below 2% in the December projections, before returning to target in 2027. Markets have moved to price in over two rate increases this year rather than cuts – a significant repricing from where expectations stood just weeks ago. The tone from Lagarde was noticeably more guarded than in February, rowing back explicitly on the “good place” language she had used as recently as the last meeting. The Swiss National Bank, also meeting Thursday, held its rate at 0.00% and signalled an increased willingness to intervene in foreign exchange markets to counter excessive Swiss franc appreciation driven by safe-haven demand.
Oil: the variable none of the banks can control
Three weeks into the conflict, and the oil market is reflecting a disruption with no modern precedent. Brent crude spiked above $110/barrel mid-week after the US and Israel struck Iran’s South Pars gas field – a facility shared with Qatar that underpins roughly 20% of global LNG supply. By Thursday morning Brent had extended to above $113/barrel, with today’s range running as high as $119/barrel. West Texas Intermediate (WTI) crude has been trading around $96/barrel, pushing the Brent-WTI spread to roughly $18 per barrel – an 11-year high – against a normal differential of $5 to $8. The divergence widens further in physical markets: Oman crude has traded near $153/barrel and Dubai around $136/barrel, reflecting the acute scarcity of exportable barrels in the region. Physical crude in Asia is also trading at a near $40 premium over its paper equivalent, a signal that actual barrels are far scarcer than futures suggest.
The International Energy Agency (IEA) has authorised the largest emergency reserve release in its 50-year history – 400 million barrels, with the US committing 172 million barrels from its Strategic Petroleum Reserve over 120 days. The release has not moved the market in any sustained way. Leading independent energy research and business intelligence company, Rystad Energy, estimates that a two-month conflict will keep Brent near the $110/barrel mark, while a four-month scenario could take Brent to $135/barrel by June.
Iran’s new supreme leader, Mojtaba Khamenei – the son of Ali Khamenei, who was killed by an Israeli strike in the opening days of the war – has publicly vowed to keep the Strait closed as a tool of economic pressure. Tanker attacks continued through the week, with six vessels struck in a two-day period. US President, Donald Trump, has discussed navy escorts through the Strait but the Pentagon has indicated operational readiness is weeks away. The US allowing Iranian tankers to transit the waterway and the Treasury issuing a temporary licence for sanctioned Russian oil purchases represent the two most visible diplomatic gestures thus far, but neither has materially altered the fundamental supply picture. The IEA’s own assessment is blunt: the single most important variable for a return to stable energy flows is a resumption of transit through the Strait of Hormuz. Until that happens, the inflationary overhang will keep every central bank’s next move in question.
MARKET MOVES
Bonds
The 10-year Treasury yield pushed toward 4.28% – its highest level since August – after the Fed held rates steady but reinforced its inflation-first posture. The Fed’s message was clear: cuts are off the table until price pressures visibly ease, with projections maintaining one reduction this year and one in 2027. Above-consensus Producer Price Index data released mid-week added to the upward pressure on yields. Attention now turns to US jobless claims for further clues around any softening in the labour market.
Germany’s 10-year bund yield touched 3%, a level not seen since July 2011, after the ECB held rates but shifted its tone sharply. The central bank raised its 2026 inflation forecast, cut growth projections, and framed the Middle East conflict as a direct upside risk to prices, driven by energy costs. Money markets now fully price in at least two ECB rate hikes this year; a dramatic pivot from the cut expectations that prevailed only weeks ago.
UK gilt yields broke above 4.8% for the first time since September 2025, after the BoE’s unanimous hold surprised markets that had expected a split decision. The BoE’s warning that near-term CPI inflation will likely rise – reversing recent domestic disinflation – was hawkish enough to drive traders to price in two hikes for 2026. The surge in European gas prices, following attacks on Qatari LNG infrastructure, was central to the committee’s concern.
Equities
US equity markets ended Thursday in the red, with the Dow falling 0.44%, the S&P 500 slipping 0.27%, and the Nasdaq declining 0.28%. Eight of 11 S&P sectors closed lower, with materials, consumer discretionary, and consumer staples leading the weakness. The major indices are now on course for a fourth consecutive weekly loss – a run that reflects the cumulative weight of higher energy prices, a hawkish Fed, and geopolitical uncertainty, rather than any single catalyst. Futures steadied somewhat after remarks from President Trump, US Treasury Secretary, Scott Bessent, and Israeli Prime Minister, Benjamin Netanyahu, provided tentative reassurance that the Iran conflict may not escalate into a wider regional energy crisis.
The EU’s STOXX 50 dropped 2.1% to 5,616 and the broader pan-European index fell 2.4% to 584 – both touching their lowest levels of the year. Energy price shocks were the primary trigger, with Iran’s strikes on Qatari and Saudi infrastructure driving natural gas and power prices sharply higher. Banks were among the worst performers, with UniCredit, Santander, and Intesa Sanpaolo each down more than 2.5% as sovereign bond selloffs placed pressure on the sector. Industrials including Schneider, Safran, and Airbus shed around 3.5%.
The UK’s FTSE 100 fell more than 2% on Thursday to its weakest level in over two months. The BoE’s unanimous hold and hawkish tone, combined with surging oil and gas prices, overshadowed otherwise reasonable labour data. Banking stocks bore the brunt, with NatWest down 8.0% and Barclays, Lloyds, and HSBC all off between 3.0% and 4.5%. Heavyweights including aero-engine manufacturer, Rolls-Royce, and mining corporation, Rio Tinto, both fell close to 5%. Energy giant, BP, was a rare bright spot, rising 4.9% after agreeing to sell its Germany-based Gelsenkirchen refinery.
Commodities
Brent had one of its most volatile weeks in recent memory, surging to nearly $120/barrel mid-week before pulling back below $107 this morning. The initial spike was driven by Iranian strikes on Qatari and Saudi energy infrastructure, with disruption to the Strait of Hormuz – now effectively closed – forcing major regional producers to cut output sharply. The pullback came after coordinated messaging from Washington and Jerusalem: Trump ruled out ground troops, Bessent floated the possibility of removing Iranian oil sanctions, and Netanyahu indicated Israel would pause strikes on Iranian energy facilities. Despite the relief, Brent remains almost 50% higher since the conflict began.
West Texas Intermediate (WTI) tracked Brent’s volatility closely, hitting $101/barrel intraday, yesterday, before retreating below $94. The same geopolitical signals that eased Brent also drove the pullback in WTI, though prices remain approximately 40% above pre-conflict levels. On the domestic side, President Trump temporarily waived the Jones Act (which requires all goods transported by water within the US to only use US-flagged, built and owned ships) to reduce transportation costs for oil and gas within the US – a relief measure aimed at cushioning the supply shock on American consumers.
Gold has recovered some ground to climb back above $4,700/ounce this morning, following a sharp two-day selloff, and was tracking its worst weekly performance in six years. The counterintuitive weakness in a traditional safe-haven asset reflects the nature of the current shock. Energy-driven inflation is prompting investors to rotate into the dollar and Treasuries rather than metals, as higher rates directly reduce gold’s appeal. Hawkish pivots from the Fed, ECB, BoE, and BoJ – all signalling a bias toward tighter policy – compounded the pressure.
Currencies
The US Dollar Index is hovering near 99.4 after shedding more than 1% in the previous session – a rare pullback driven not by any shift in Fed tone but by the hawkish pivot across other major central banks. The ECB, BoJ, and BoE all signalled a tightening bias on Thursday, boosting their respective currencies at the dollar’s expense. The Fed is now the only major central bank not expected to hike rates this year.
The euro climbed to $1.15/€ following the ECB’s decision to hold the deposit rate at 2% for a sixth consecutive meeting while signalling that further tightening remains on the table. The bank’s explicit warning around Iran-related energy price risks and upward revision to its 2026 inflation forecast reinforced expectations for at least two hikes this year – with markets pricing in a possible third. The currency’s strength reflects the magnitude of the ECB’s shift, from a broadly neutral stance to one with a clear tightening bias.
The pound pushed above $1.33/£ after the BoE’s unanimous hold and unexpectedly hawkish communication. The market had positioned for a seven-to-two split favouring steady rates; the unanimous decision, combined with explicit concern over surging energy costs reversing domestic disinflation, caught traders offside. Two full BoE hikes are now priced for 2026. Wage growth and unemployment data also came in softer than forecast, but policymakers appeared more focused on the external energy shock than domestic labour market moderation.
*Please note that all information is at the time of writing.
Key indicators:
GBP/USD: 1.3429
GBP/EUR: 1.1581
GPB/ZAR: 22.50
BRENT CRUDE: $108.01
GOLD: $4,692.90
Sources: Bloomberg, Investing.com, Reuters, Trading Economics and World Monitor.
Written by Citadel Advisory Partner and Citadel Global Director, Bianca Botes.
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