Global financial markets entered a cautious phase on Friday as investors weighed the fragility of the US-Iran ceasefire and awaited the release of the US Consumer Price Index (CPI) data for March, a key indicator for Federal Reserve policy direction [1][2][3][4][5][6]. The EUR/USD pair retreated to 1.1685 after a four-day rally, with technical signals suggesting a potential trend reversal, as doubts grew over Iran’s commitment to the peace process and ongoing violations of the ceasefire by the US and Israel were reported [1]. The US has announced that a delegation led by Vice President JD Vance will travel to Islamabad for talks, but Tehran has sent mixed signals about its participation, and the situation is further complicated by Israel’s continued military actions in Lebanon, which have resulted in at least 300 deaths since the ceasefire agreement [1][2][3][5][6].
The Japanese Yen drifted lower, with USD/JPY trading near 159.30, as the US Dollar found support from the fragile ceasefire and expectations of higher US inflation, driven by surging oil prices due to Middle East tensions [2]. Market consensus anticipates US headline CPI to rise to 3.3% year-on-year in March from 2.4% in February, with core CPI expected at 2.7% versus 2.5% prior [2][3][6]. Any upside surprise in inflation could reinforce the US Dollar’s strength and support the Federal Reserve’s higher-for-longer stance [2][3][5][6].
Currency markets reflected this uncertainty: the US Dollar Index (DXY) traded slightly higher near 98.90–99.00, while the EUR/USD and NZD/USD pairs both paused their recent rallies, and the S&P 500 futures traded subduedly around 6,825 after a two-day rally [1][3][6]. The New Zealand Dollar corrected 0.25% lower to 0.5845, with the Reserve Bank of New Zealand holding its Official Cash Rate steady at 2.25% and signaling a continued tightening bias [6]. Asia FX relief rallies, sparked by the ceasefire, were described as fragile by MUFG, with analyst Lloyd Chan noting that subdued tanker traffic through the Strait of Hormuz and persistent war-risk premiums continue to underpin US Dollar strength and threaten reversals in oil-sensitive currencies [5].
Geopolitical risks remained elevated, with the Strait of Hormuz seeing less than 10% of average sea traffic in the past 24 hours due to mines and bureaucracy, effectively creating a blockade [1][4][5]. Oil prices edged higher, with West Texas Intermediate stabilizing near $92.00 per barrel, and gold traded in a narrow range as institutional demand increased, reflecting investor caution ahead of the US CPI release and ongoing Middle East tensions [3][4][5].
Forward-looking statements from analysts and policymakers highlighted the market’s focus on the outcome of the US-Iran talks in Pakistan and the potential for further disruptions if the ceasefire collapses. US President Donald Trump warned of large-scale attacks on Iran if it fails to comply with the ceasefire terms, while Japanese Prime Minister Sanae Takaichi announced plans to release 20 days’ worth of oil reserves in May to stabilize domestic energy supplies [2][3][5]. The European Central Bank faces pressure to hike rates as German inflation remains elevated at 2.8% year-on-year in March, attributed in part to the ongoing conflict [1].
CONCLUSION
Markets are in a holding pattern as investors await the US CPI data and monitor the precarious US-Iran ceasefire. Persistent Middle East tensions, elevated oil prices, and subdued shipping activity continue to support the US Dollar and weigh on risk sentiment. The outcome of the upcoming US-Iran talks and inflation data will be pivotal for market direction in the near term.