Oil Prices Ease as Central Banks Warn of Inflation Risks Amid Middle East Conflict

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Oil prices.

Oil prices edged lower on Friday, while global bond markets remained under pressure, after leading central bankers warned of rising inflation risks linked to the ongoing conflict in the Middle East, which has unsettled financial markets.

Following a week of monetary policy meetings across the G7 economies and other major central banks, investors are increasingly anticipating a more aggressive policy outlook. Markets are no longer pricing in an interest rate cut from the Federal Reserve this year, while expectations for a rate rise by the Bank of England next month remain uncertain. Meanwhile, sources indicate that the European Central Bank may begin discussions on rate increases in April, with potential tightening as early as June.

A sharp sell-off in global bonds pushed yields to multi-month highs on Thursday, although the pressure eased slightly in Asian trading on Friday. The yield on the two-year U.S. Treasury note — often seen as a gauge of near-term rate expectations — rose by more than 20 basis points in the previous session.

In Europe, Germany’s two-year bond yield has climbed approximately 56 basis points so far this month, while yields on two-year British government bonds have surged by around 88 basis points.

In energy markets, Brent crude futures fell by 3% to $105.43 per barrel, while U.S. crude declined by 2.2% to $94 per barrel. The drop followed moves by European countries and Japan to support efforts to secure safe passage for shipping through the Strait of Hormuz, alongside U.S. measures aimed at boosting oil supply.

Despite the decline, oil prices remain more than 40% higher this month, driven by disruptions linked to the conflict involving Iran. Natural gas prices have also surged, particularly in Europe, where they jumped by as much as 35% on Thursday after strikes targeted key regional infrastructure.

U.S. President Donald Trump urged Israel to refrain from further attacks on Iranian gas facilities, highlighting concerns over escalating energy disruptions.

Equity markets showed signs of stabilisation, with MSCI’s broad Asia-Pacific index (excluding Japan) rising 0.18% and heading for a weekly gain. U.S. stock futures also moved higher, with Nasdaq futures up 0.3% and S&P 500 futures gaining 0.37%, while European futures posted stronger advances.

Currency markets reflected shifting expectations on interest rates, with the U.S. dollar on track for a weekly loss of more than 1% as investors priced in comparatively steeper tightening by other central banks. The euro rose to $1.1570, while sterling held steady at $1.3424.

The Japanese yen strengthened slightly, supported in part by comments from Kazuo Ueda, Governor of the Bank of Japan, who signalled a continued bias towards monetary tightening despite holding rates steady.

Meanwhile, spot gold rose 0.8% to $4,686.97 per ounce, reflecting ongoing demand for safe-haven assets.

Source: Reuters



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