Financial markets turned risk-averse on Thursday as hopes for a ceasefire in the Middle East faded, following Iran's rejection of a US-proposed 15-point peace plan and denial of ongoing negotiations with Washington [1][2][3][5]. Iran has set its own sweeping demands, including authority over the Strait of Hormuz and reparations, which US officials described as 'ridiculous and unrealistic' [3][4][5]. The conflict has led to continued missile and drone attacks across the region, and the effective closure of the Strait of Hormuz—a critical chokepoint for global crude oil—has persisted for the fourth week, strangling the global economy and fueling inflation concerns [1][2][3][5][6]. WTI Crude Oil prices surged above $91.00–$91.50, rising about 1.5% on the day [1][3], further underpinning the US Dollar's safe-haven status and triggering a fresh leg up in US Treasury yields [1][3].
The US Dollar Index (DXY) held comfortably above 99.50–99.65, reflecting investor preference for safety amid heightened geopolitical risks [3][4][5]. Risk assets suffered: US stock index futures lost between 0.3% and 0.4% [3], and the Australian Dollar (AUD/USD) remained near monthly lows around 0.6950, struggling to gain traction despite hawkish remarks from Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent [1][3]. Kent warned that the Iran war tightens financial conditions and increases inflation risks, emphasizing the need for policymakers to cap inflation amid surging energy prices [1][3]. Rabobank's Jane Foley noted that despite the RBA being the only G10 central bank to hike rates last week, the AUD has underperformed recently, but forecasts a return to 0.71 in 3–6 months and 0.72 in twelve months, assuming energy flows recover to 80% of pre-war levels by August [6].
Silver (XAG/USD) drifted below the $70.00 mark, losing momentum as the US Dollar strengthened and risk appetite waned [2]. Technical analysis indicated a bearish bias, with initial support at $69.00 and resistance near $73.00 [2]. Gold also reversed gains, losing more than 1% on the day and trading below $4,500 [3]. The EUR/USD pair consolidated losses near 1.1550, pressured by the safe-haven USD and negative risk sentiment. The European Central Bank (ECB) signaled a possible rate hike at the April meeting, but German consumer confidence hit a two-year low at -28 for April [5]. Technical indicators for EUR/USD pointed to further downside risk [5].
USD/JPY held gains near 159.50, tracking the US Dollar's strength. The pair's outlook remained firm amid uncertainty over Iran's ceasefire stance, with technical analysis showing bullish momentum above the 20-day EMA at 158.30 [4]. In Japan, the Bank of Japan (BoJ) released a new inflation gauge, but its market impact was not detailed [4].
Market participants remain cautious, with analysts warning that prolonged conflict in the Middle East could exacerbate economic damage and inflationary pressures. Rabobank's forecast for AUD/USD is contingent on the gradual reopening of the Strait of Hormuz and recovery in energy flows, while Australia's net energy exporter status may offer some protection to its terms of trade during the crisis [6].
CONCLUSION
The collapse of ceasefire talks in the Middle East has triggered a broad risk-off move, strengthening the US Dollar and pressuring risk assets such as AUD, EUR, and Silver. Elevated oil prices and persistent geopolitical uncertainty are fueling inflation concerns and prompting central banks to consider hawkish policy stances. Analysts expect continued volatility, with recovery in risk assets dependent on resolution of the conflict and normalization of energy flows.