The US-Iran conflict has intensified, causing significant market volatility across currencies, commodities, and equities. The US Dollar Index (DXY) traded broadly firm above 100.00, reaching an intraday high of 100.35 and remaining close to its two-week high, as investors sought safe-haven assets amid fears of a widening conflict in the Middle East [1]. Over the past seven days, the US Dollar was strongest against the Australian Dollar, up 2.16%, and also gained against other major currencies, including a 1.23% rise versus the Japanese Yen [1]. The escalation follows reports that the US Pentagon is considering sending 10,000 additional troops to Iran for ground military attacks, with Iran’s Parliament speaker threatening retaliation against any US incursion [1][2]. Over the weekend, Iran-backed Houthi militants launched ballistic missiles at Israel, and 3,500 additional US troops arrived in the region as the conflict entered its second month [3].
Oil prices have surged in response to the conflict. WTI crude rose nearly 2.5% above $102.00 [1], while Brent crude jumped 3% to more than $116 a barrel, marking the highest level since the conflict began [3]. US crude also climbed 3% to nearly $103 a barrel [3]. Average US gasoline prices reached $3.98 per gallon, the highest since summer 2022, with analysts warning that oil prices could spike to $200 a barrel if the crisis deepens [3]. Patrick De Haan, chief analyst at Gas Buddy, estimates US drivers will have spent an additional $10 billion on gasoline since the conflict started one month ago [3].
US equity markets have reacted negatively, with S&P 500 futures falling around 0.6% to 6,370, a seven-month low, during Asian trading hours [2]. All three major US stock indexes were down as much as 0.5% ahead of Monday’s market open [3]. Risk aversion has increased as uncertainty over a resolution to the Iran conflict persists [2][3]. Traders are closely watching upcoming US economic data, including Nonfarm Payrolls and ISM PMI, which are expected to influence Federal Reserve policy expectations [2]. On the earnings front, Nike, McCormick & Company, and Conagra Brands are set to report results this week [2].
President Donald Trump has made several statements regarding the conflict and negotiations. He told reporters that the US "will make a deal" with Iran and that talks are progressing well, with a deal potentially achievable "fairly quickly" [2][3]. Trump also claimed Iran "gave us most of" a 15-point plan to end the war, though Iran has not confirmed this publicly [3]. He further stated that 20 boatloads of oil will pass through the Strait of Hormuz beginning Monday "out of a sign of respect" [3]. However, market participants remain skeptical about the prospects for a swift resolution, given the ongoing hostilities and troop deployments [3].
The surge in oil prices has led traders to nearly price out an interest rate cut by the Federal Reserve, with a 24.6% chance of at least a hike by year-end, a sharp turnaround from two rate cuts projected before the conflict began [1]. Persistently high oil prices are expected to support tight monetary conditions, as gasoline rates in the US continue to rise [1].
CONCLUSION
The US-Iran conflict has triggered a flight to safety, strengthening the US Dollar and driving oil prices to multi-year highs, while US equities have slumped to seven-month lows. Market participants are bracing for further volatility, with Fed policy expectations shifting toward tighter conditions and analysts warning of the potential for even higher oil prices. Despite President Trump's optimistic statements about negotiations, uncertainty remains high and the market impact is significant.