A look at the day ahead in European and global markets from Rae

Wee

After a remarkable rally in the face of the ongoing

U.S.-Israel war on Iran, the dollar has finally toppled from its

peak.

But that's only because of the sea change in global rate

expectations brought about by the surge in energy prices, with

the Federal Reserve now left alone as the only major central

bank not expected to raise rates this year.

The prospect of a more aggressive policy path forward has

been the biggest takeaway for investors following a hectic week

of monetary policy meetings across the Group of Seven (G7)

nations and others.

After facing criticism they acted too late to tame a

post-COVID jump in inflation exacerbated by the Russian invasion

of Ukraine in 2022, policymakers are determined to rein in

prices without derailing still-patchy economic growth - and

above all to avoid a "stagflation" mix of recession and price

surges.

Traders now see a 40% chance that the Bank of England could

hike next month, while sources said the European

Central Bank may need to begin discussing rate increases in

April and possibly tighten policy in June.

The hawkish rate repricing has in turn sparked a rout in

global bond markets, with short-dated British gilts on Thursday

suffering one of their worst days since modern records began,

while the two-year U.S. Treasury yield surged more

than 20 basis points at one point.

Trading of cash U.S. Treasuries was closed in Asia on Friday

due to a holiday in Japan, though futures pointed to

abating selling pressure.

Germany's bund futures also edged slightly higher,

as did French OAT futures.

Markets steadied a little on Friday, helped by a retreat in

oil prices as leading European nations and Japan offered to join

efforts to secure safe passage for ships through the Strait of

Hormuz and the U.S. outlined moves to boost oil supply.

Still, Brent crude futures remained firmly above the

$100 a barrel mark, having already risen 47% for the month thus

far, while U.S. crude has gained 40% over the same

period.

With the conflict in the Middle East showing little sign of

easing, investors are increasingly waking up to the possibility

of a prolonged period of elevated energy prices.

The latest strikes on energy facilities since the onset of

the war have brought to life some of the energy industry's worst

fears - that a conflict in the region will leave long-term

damage and shortages in global energy supplies.

Key developments that could influence markets on Friday:

- Germany producer prices (February)

(Editing by Sonali Paul)