Global financial markets are experiencing heightened volatility as investors react to the fragile ceasefire between the United States and Iran, with direct talks set to begin in Pakistan on Saturday [1][2][5]. The ceasefire, announced early Wednesday, has been met with skepticism due to ongoing Israeli attacks on Iran-backed Houthis in Lebanon and allegations from Iran’s parliament speaker Mohammad Bagher Qalibaf that the US violated three clauses of the 10-point peace proposal, specifically referencing attacks in Lebanon [1][5]. Despite these tensions, both sides have confirmed they will send delegations for negotiations, with the US team led by Vice President JD Vance [2][5].
Currency markets reflected the uncertainty: USD/CAD edged up to around 1.3850, holding above its 20-day EMA at 1.3827, with a modest bullish bias as the US Dollar Index (DXY) traded 0.1% higher near 99.10 [1]. EUR/USD traded flat above 1.1660, pulling back from Wednesday’s highs after Iran closed the Strait of Hormuz in response to Israeli attacks, and remains in a constructive near-term bias [2]. Silver (XAG/USD) traded flat near $74.00, consolidating near recent lows as higher oil prices—driven by the closure of the Strait of Hormuz—had previously pressured the metal, though these pressures have eased following the ceasefire announcement [5].
Equity markets initially rallied sharply on the ceasefire headlines, with global benchmarks rising to just 2% below all-time highs and cyclicals and semiconductors leading gains, while energy and minimum volatility lagged [4]. The S&P 500 marked its sixth consecutive positive session, but Asian equities and Western futures began to give back gains as doubts over the ceasefire’s durability resurfaced [4].
On the macroeconomic front, attention is turning to upcoming US inflation data, with the March CPI and PCE Price Index releases expected to reveal the inflationary impact of the Middle East conflict [2][3]. Commerzbank’s Antje Praefcke notes that while the March inflation rate is likely to show a jump to well over 3% year-on-year due to higher petrol prices, the broader PCE index—already at 2.8%—may rise further as oil prices remain 50% above pre-crisis levels [3]. This could revive political pressure on the Federal Reserve, with President Trump potentially resuming verbal attacks on the Fed if inflation persists [3]. The CME FedWatch tool indicates a 76.4% probability that the Fed will keep rates steady this year, a shift from earlier expectations of two hikes during the conflict [5].
In Canada, investors are awaiting March employment data, with consensus at 15,000 jobs added after a previous decline of 83,900, which could impact the Canadian dollar [1]. In Europe, German industrial production declined in February, but the impact on the euro has been marginal [2].
CONCLUSION
Markets remain highly sensitive to developments in the US-Iran ceasefire, with risk assets initially rallying but now showing signs of caution as doubts persist. Upcoming US inflation data and central bank responses are in sharp focus, with the potential for renewed political tensions to influence the US dollar and broader market sentiment. The outcome of the direct talks in Pakistan and subsequent geopolitical developments will be critical for near-term market direction.