USD/JPY, USD/CHF Forecast: Yields Lead as Oil Shock Complicates Haven Trades
By David Scutt, Market Analyst — March 11, 2026
The recent volatility in the USD/JPY and USD/CHF currency pairs is less about oil prices and Middle East tensions, and more about the renewed dominance of US Treasury yields and interest rate differentials. While energy prices continue to grab headlines due to their geopolitical implications, market correlations suggest that traditional drivers—especially yield spreads and risk sentiment—are once again steering these forex markets.
Yields Take Center Stage amid Rising Oil Prices
In the overnight trading sessions, US Treasury yields surged, influenced by signals from inflation data and a resurgence in energy prices. February’s US Consumer Price Index (CPI) initially seemed moderate, but detailed analysis reveals firmer underlying inflationary pressures when viewed through the Federal Reserve’s preferred gauge, the core Personal Consumption Expenditures (PCE) deflator.
Economists are now forecasting the February core PCE to rise by 0.4%, mirroring January’s pace and well above the Fed’s 2% annual inflation target. This has triggered a recalibration of monetary policy prospects, with market participants cutting their expectations for Federal Reserve rate cuts in 2026. Currently, futures markets price in just 26.5 basis points of easing for the year—less than half the level anticipated earlier in March. The probability of any rate reduction at the Fed’s upcoming April meeting remains near negligible, at roughly 16%, rising moderately to about 31% by June.
The Oil Shock: Inflation Over Growth Concerns
The recent spike in oil prices—with prices jumping nearly 5%—stems from ongoing disruptions in the Strait of Hormuz, a crucial shipping chokepoint. Despite the International Energy Agency’s recommendation to release a record 400 million barrels from strategic reserves (more than double the volume released after Russia’s 2022 Ukraine invasion), logistics and geopolitical risks are keeping oil supplies constrained. Tanker traffic remains close to halted through the Hormuz strait due to attacks, fueling fears of tighter energy supply and sustained inflation pressures.
Notably, the US’s energy self-sufficiency means markets are more worried about inflation than growth impacts. This dynamic helps explain why crude oil prices reacted with an initial "sell the rumor, buy the fact" pattern following the IEA announcement—the core issue isn’t volume but the ability to get oil to market.
USD/JPY: A Classic Yield-Driven Currency
Although oil and Middle East tensions dominate the macro story, USD/JPY’s price action adheres strongly to traditional drivers—namely, US and Japanese yield spreads and risk appetite shifts. Correlation analysis reveals a strong link over the past five days between USD/JPY movements and US-Japan two-year and ten-year Treasury yield spreads, with correlations of 0.73 and 0.83 respectively. The outright US two-year Treasury yield itself correlates at 0.81, signaling that US Treasury yields are central to USD/JPY performance at present.
Contrastingly, Brent crude oil shows near zero correlation with USD/JPY in the short term, underscoring oil’s limited direct role despite its headline prominence.
Technical Outlook for USD/JPY
USD/JPY recently surged to fresh multi-month highs, boosted by rising US yields and expanding rate differentials. The pair maintains an established uptrend, supported by upward-sloping moving averages and bullish technical indicators. The Relative Strength Index (RSI) remains above 50, and the Moving Average Convergence Divergence (MACD) indicator sits firmly in positive territory.
Having broken above resistance at around 157.88 earlier this week and printing new highs, the pair is now eyeing 159.45—the 2026 peak. Near-term support and resistance levels include 158.90, which many traders may use as a reference for short-term positions, and a more ambitious target at 160.23 if upward momentum continues.
On the downside, the February uptrend remains a critical support level, having been repeatedly tested but not broken. A significant shift towards risk aversion would likely be needed to break this trend and pull USD/JPY into a sideways or bearish pattern.
USD/CHF: Rate Spreads and Haven Demand in Play
USD/CHF’s recent trading dynamics mirror some of USD/JPY’s yield-driven behavior but include an added layer of haven demand reflective of geopolitical uncertainty.
Correlations indicate that US Treasury yields are a major influence, with the USD/CHF pair showing a strong positive correlation (0.78 over five days) with the US two-year yield and a 0.73 correlation with the US-Switzerland two-year yield spread. The 10-year spread, while less influential, remains relevant.
At the same time, classic haven characteristics persist. USD/CHF maintains a strong negative correlation with gold (-0.79) and volatility as measured by VIX futures (-0.65). In essence, the Swiss franc benefits when investors flock to safe assets amid rising risk aversion.
A Curious Haven Environment
Despite escalating conflict in the Middle East, gold and volatility have failed to show the expected sustained gains. This muted response complicates the typical narrative around haven demand, leaving USD/CHF influenced by a blend of rate differentials and an unsettled risk sentiment that has yet to translate into a clear trend for safe-haven assets.
Conclusion
While oil shocks and geopolitical turmoil dominate headlines, the core drivers underpinning USD/JPY and USD/CHF remain deeply tied to US Treasury yields and interest rate differentials. For USD/JPY, widening US-Japan yield spreads and positive momentum suggest a continued upward trend, with key resistance levels in sight. USD/CHF is caught between shrinking Fed easing expectations and traditional haven demand as investors navigate an uncertain geopolitical landscape with less pronounced gold and volatility responses.
Traders should watch evolving US yield curves, Fed policy signals, and risk sentiment indicators to anticipate next moves in these major forex pairs amid a complex global environment.
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