Recent developments in global foreign exchange markets have been shaped by central bank policy expectations, geopolitical tensions, and commodity price movements. The British Pound (GBP) has been the second best performing G10 currency after the US Dollar since the onset of the Middle East conflict, primarily due to a sharp repricing of Bank of England (BoE) policy expectations. Rabobank notes that while markets are currently pricing in two to three BoE rate hikes over the next year, the bank views three hikes as excessive and expects only one hike, potentially in April. Rabobank forecasts EUR/GBP to move toward 0.87–0.88 over the next 3–6 months, citing UK growth and stagflation risks that could weigh on Sterling, and anticipates the pound will give back some of its recent gains against non-USD G10 currencies into the spring [1].
The Norwegian Krone (NOK) has outperformed most European peers during the Middle East conflict, supported by Norway’s status as an energy exporter and a hawkish shift in Norges Bank policy. MUFG analysts highlight that rising energy prices and higher yields are likely to underpin NOK in the near term. The Norges Bank stated at its latest policy meeting that it will likely be appropriate to raise the policy rate at one of the forthcoming meetings, with plans to raise rates by 25–50bps in 2026. However, MUFG warns that a much larger oil price spike and global slowdown risk could eventually erode NOK’s support [2].
The Japanese Yen (JPY) has recently weakened, consistent with higher energy prices and Japan’s net oil and gas deficit, which is around 2.7% of GDP in 2025. HSBC analysts caution that this trend could reverse if global financial conditions tighten, equity volatility rises, or US Treasury yields fall. Historically, in such scenarios, USD/JPY has declined in 85% of weekly observations since 2006. If yields continue to rise alongside higher oil prices, USD/JPY is likely to go higher, but if risk aversion intensifies and US yields fall, the JPY could rebound quickly [3].
The Indian Rupee (INR) rallied by over 1% to a 93.53/USD low after the Reserve Bank of India (RBI) intervened and imposed new limits on banks’ net open FX positions, capping them at $100 million per day effective 10 April, compared to the previous limit of 25% of a bank’s total capital. Despite this intervention, the INR remains down 4% this month amid record foreign portfolio investor (FPI) outflows of -$12.1 billion from equities and -$1.6 billion from bonds. Societe Generale analysts warn that the relief is likely to be short-lived due to ongoing trade and fiscal headwinds, and note that the 10-year Indian Government Bond (IGB) yield is close to breaching 7.0% for the first time since July 2024 [4].
CONCLUSION
Central bank policy shifts and geopolitical risks are driving significant volatility across major currencies. While some currencies like the NOK and GBP have seen near-term strength due to policy repricing and energy dynamics, underlying economic and structural risks suggest these gains may be temporary. Market participants remain cautious as intervention and policy signals offer only brief respite against broader macroeconomic headwinds.