A fragile two-week ceasefire between the United States and Iran has triggered significant volatility across global financial markets, particularly impacting oil prices and currency movements. West Texas Intermediate (WTI) crude oil reversed earlier gains, trading around $92.00 per barrel after reaching a daily high of $95.20, following a nearly 10% drop on Wednesday when the ceasefire was announced [2]. The optimism surrounding the truce was tempered by reports of violations, with Iran claiming three points of the ceasefire had already been breached due to Israeli strikes on Lebanon. Israel maintains that the ceasefire does not apply to its conflict with Hezbollah in Lebanon, while Iran insists it does and has threatened to withdraw from the agreement if attacks persist [2].
Despite these tensions, signs of stabilization emerged as MarineTraffic data indicated the first non-Iranian oil tanker passed through the Strait of Hormuz since the ceasefire announcement [2]. However, physical oil flows remain constrained, and supply-side risks are elevated. Saudi Arabia's Energy Ministry reported operational halts at several facilities following recent attacks, with the Khurais and Manifa fields each cutting around 300,000 barrels per day and damage to the East-West pipeline reducing throughput by about 700,000 bpd [2].
Currency markets responded to the developments with the US Dollar Index (DXY) dropping to 98.80 after the US Personal Consumption Expenditures (PCE) report confirmed sticky inflation, reinforcing the Federal Reserve's cautious stance. This was overshadowed by an upside surprise in Initial Jobless Claims, pointing to potential labor market softening and prompting a decline in US Treasury yields [1]. The US Dollar weakened against most major currencies, notably losing 0.25% against the Japanese Yen, while EUR/USD edged higher toward 1.1700 and GBP/USD recovered near 1.3430 [1]. Asian currencies also strengthened alongside the weaker Dollar, despite ongoing geopolitical risks [3].
MUFG's Senior Currency Analyst Michael Wan advised clients to remain cautious and hedge exposure to vulnerable Asian Emerging Market currencies such as INR, PHP, THB, and KRW, noting that while financial markets are buoyant, physical oil flows through the Strait of Hormuz remain far too low and focused on outbound rather than inbound traffic [3]. Geopolitical headlines introduced a slightly more constructive tone, with Israeli Prime Minister Benjamin Netanyahu instructing his cabinet to begin direct negotiations with Lebanon and reports that President Donald Trump has urged Israel to scale back strikes on Lebanon to support ongoing negotiations with Iran [2][1].
Market participants remain wary, as persistent inflation, weakening US employment data, and unresolved supply risks in the Middle East continue to create uncertainty around the Federal Reserve's policy path and the durability of the ceasefire.
CONCLUSION
The fragile US-Iran ceasefire has led to sharp swings in oil and currency markets, with supply disruptions and geopolitical risks keeping volatility elevated. While financial markets have shown some buoyancy, analysts urge caution and hedging, especially for Asian Emerging Market currencies, as physical oil flows remain constrained and the broader situation in the Middle East is far from resolved. Persistent inflation and labor market concerns in the US add further uncertainty to the outlook.