On Tuesday, financial markets remained volatile as geopolitical tensions in the Middle East intensified, particularly surrounding the ongoing conflict involving Iran and the closure of the Strait of Hormuz. West Texas Intermediate (WTI) crude oil rebounded sharply, rising more than 3% to $91.65 after Monday's 11% sell-off, with intraday prices ranging from near $89 to about $93 before settling close to $91.00 by the close [1][3]. The International Energy Agency (IEA) described the Hormuz closure as the largest supply disruption in global oil market history, with flows collapsing from around 20 million barrels per day to a trickle. In response, IEA member nations agreed on March 11 to release a record 400 million barrels from strategic reserves, though the agency stressed that reopening the strait is the only lasting solution [3]. Goldman Sachs raised its WTI forecasts to $98 for March and $105 for April, warning that if Hormuz flows remain at 5% of normal through April 10, prices are likely to keep rising [3].
The US Dollar Index (DXY) also saw a notable recovery, climbing about 0.30% to 99.40 after Monday's sharp sell-off, reflecting renewed safe-haven flows as Iran denied claims of diplomatic progress. The DXY traded at 99.50 after bouncing off daily lows of 99.09, with the Greenback gaining 0.34% [1][2]. The Cleveland Fed's inflation nowcast is tracking March CPI at 3.02% and PCE at 3.14%, both sharp jumps from February, driven almost entirely by the oil shock [2]. CME FedWatch pricing now shows essentially zero probability of a rate cut by year-end, with some traders beginning to price in a possible hike if core inflation picks up [2]. US Treasury yields rose, with the 10-year T-note up nearly five and a half basis points at 4.408% [1].
Gold (XAU/USD) remained pressured, trading at $4,404 after hitting a daily low of $4,306, as rising energy prices and firm US yields offset persistent geopolitical tension [1]. Uncertainty about the duration of the US-Israel and Iran conflict has increased the US Dollar's safe-haven appeal, acting as a headwind for bullion prices [1]. Money markets do not expect any rate cuts by the Federal Reserve this year, following last week's meeting, and the swaps market had priced in a 14% chance of a rate hike at the FOMC's April meeting [1].
US business activity slowed, according to S&P Global's March Flash PMIs. The S&P Global Services PMI slipped from 51.7 to 51.1, while the Manufacturing PMI expanded at 52.4, beating the 51 consensus. The composite PMI fell to an 11-month low of 51.4, with input costs rising at their fastest pace in ten months and employment declining for the first time in over a year [1][2]. S&P Global's chief economist noted the data points to annualized GDP growth of just 1.0% alongside inflation potentially rebounding toward 4%, a combination that leaves the Fed caught between its dual mandates [2].
Diplomatic efforts are ongoing, with reports that the US and regional mediators are discussing high-level peace talks with Iran as soon as Thursday, though Iran has denied such talks and is maintaining the closure of the Strait of Hormuz [1][2][3]. The Pentagon is preparing to deploy roughly 3,000 troops from the 82nd Airborne Division to the Middle East, adding to the 50,000 already in the region, signaling increased ground-operations capability [1][3]. Traders are watching two near-term flashpoints: the potential peace talks and the March 28 deadline when Trump's five-day strike postponement expires [3].
CONCLUSION
The closure of the Strait of Hormuz has triggered a historic supply shock in oil markets, driving prices above $90 and prompting strategic reserve releases. The US Dollar and Treasury yields have strengthened amid safe-haven flows, while gold remains pressured by rising yields and energy prices. Market participants are closely monitoring diplomatic developments and upcoming deadlines, with the outlook for inflation and Fed policy increasingly uncertain.