Tensions in Iran show no signs of easing as of this writing, with President Trump issuing another 48-hour deadline to reopen the Strait of Hormuz. Both parties continue to adopt a tough stance, leaving a peaceful resolution out of reach. This raises the question of whether US military intervention is imminent.
The US Dollar remains robust, bolstered by positive NFP and unemployment figures that have helped solidify its recent gains. Last week, the DXY index ended largely unchanged at 100.185.
The Euro and Sterling displayed indecision again as attention focused primarily on the US Dollar and developments in Iran.
Commodity currencies had a mixed performance, further indicating that the global market is awaiting direction from the Iran conflict to determine future FX movements. The NZD, CAD, and NOK recorded losses against the Dollar, while the AUD saw a slight increase. Meanwhile, the JPY and CHF remained stable.
Crude Oil was the standout market mover of the week, with prices climbing higher as the Iran conflict persists. The closure of the Strait of Hormuz poses a significant threat to global oil supply, as reflected in rising oil prices. Last week, WTI jumped over 10%, closing just above $112.
Precious metals performed better than anticipated amid ongoing tensions over Iran. Last week, there was speculation about whether their strong performance indicated a market bottom, and it appears it might have. Should the conflict escalate further, an immediate sell-off could occur, yet theory suggests precious metals should attract safe-haven investments. Gold and Silver both rallied by approximately 4%, closing at $4,676 and $73, respectively.
Bonds exhibited diminishing downward momentum the previous week, culminating in a rally. Consequently, the 10-year UST yield closed 12 basis points lower at 4.31%, while the 10-year Bund rallied by 0.9% to 125.583.
Equities had a surprisingly robust week, possibly suggesting that the significant damage from the Iran conflict could lead to a peaceful resolution. However, Iran has shown no willingness to negotiate, so this optimism may be premature. Last week, the S&P500 and DAX both rose by over 3%, closing at 6561 and 23158, respectively.
Lastly, cryptocurrencies tracked the broader risk sentiment higher but slightly underperformed, with Bitcoin up nearly 1% at $67,000 and Ethereum up 3% at $2,050.
The Week Ahead:
Regardless of economic data and developments, the primary market influencer will be the ongoing Iran conflict. Will there be a resolution as Trump’s 48-hour deadline approaches, or will both parties continue their aggressive rhetoric and actions? In terms of data, we have the RBNZ interest rate decision (with no change anticipated), further PMI releases, and the week concludes with US inflation data.
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