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)