Markets at the start of the week were dominated by rapidly evolving US-Iran relations, with both military escalation and diplomatic negotiations occurring simultaneously. On Monday, optimism over a potential US-Iran deal led to a sharp 6.57% drop in WTI crude oil prices to $89.50, briefly breaking below the $91 support level. However, overnight US strikes against Iranian forces near the Strait of Hormuz and Iranian missile responses triggered a rebound in WTI, which climbed 3.14% to $92.52 on Tuesday. Despite the ongoing hostilities, continued peace talks in Doha, mediated by Qatar, kept hopes for a diplomatic resolution alive [1][3].
The S&P 500 index responded to these developments by briefly reaching record highs above 7,540 before retreating to close at approximately 7,525.6, down about 0.23% for the day. This price action reflected initial optimism about a peace deal, tempered by trader caution as concrete diplomatic progress remained elusive. The US dollar emerged as the strongest major currency, buoyed by a series of stronger-than-expected economic data releases: Consumer Confidence at 93.1 versus a 92.0 forecast, Dallas Fed Manufacturing Index at +0.4 versus -1.0 forecast, and Case-Shiller Home Price Index at +1.0% month-over-month versus +0.5% forecast [1][3].
Attention is now turning to the upcoming release of the US Core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation gauge. The previous Core PCE month-over-month reading was 0.3%, with a year-over-year figure of 2.8%, compared to the Fed’s 2.0% target [2]. Analysts note that a higher-than-expected PCE print could reinforce expectations for prolonged Fed tightening, supporting the US dollar and potentially pressuring risk assets. Conversely, a softer reading may revive hopes for earlier rate cuts, weighing on the dollar and supporting equities and commodities [2].
Technical levels highlighted include EUR/USD support at 1.0800 and USD/JPY resistance at 157.00, with the DXY (US Dollar Index) potentially moving above 105.00 if inflation data surprises to the upside. ECB Board member Schnabel stated that the ECB should raise interest rates in June regardless of the outcome of Iran peace talks, while President Trump is set to hold a rare cabinet meeting at Camp David as tensions persist [2][3].
According to reports, the main sticking point in the US-Iran negotiations is Iran’s $24 billion in frozen assets, with President Trump showing flexibility on the issue of enriched uranium. Secretary of State Rubio indicated that finalizing the deal language could take several more days [3].
CONCLUSION
Markets remain highly sensitive to developments in US-Iran relations, with both oil prices and equities reacting sharply to shifts in the diplomatic and military landscape. The US dollar is benefiting from both geopolitical uncertainty and robust domestic data, while traders await the upcoming Core PCE release for further policy direction. The interplay between geopolitical risks and inflation data is likely to drive volatility in the near term.