A renewed escalation in US–Iran tensions has unsettled global markets at the start of the week, with the core event being Iran's decision to re-close the Strait of Hormuz after briefly reopening it during a ceasefire period. This move came after the US maintained its blockade and seized an Iranian cargo ship, prompting Iran to threaten attacks on any vessels approaching the region and to refuse further negotiations with US officials, citing 'unrealistic expectations' [1][2][6]. US President Donald Trump reiterated threats to strike Iranian infrastructure if no agreement is reached by the end of the temporary ceasefire, which expires Wednesday [1][2][6].
The market reaction has been swift and negative. Dow Jones futures fell 0.62% below 49,350, S&P 500 futures dropped 0.49% to near 7,120, and Nasdaq 100 futures declined 0.47% to around 26,700 during European hours on Monday, reflecting increased risk aversion [2]. Last week, however, US indices had posted strong gains, with the Dow up 3.19%, S&P 500 up 4.54%, and Nasdaq 100 up 6.84%, both the latter reaching record highs [2]. The US Dollar showed mixed performance, gaining most against the Australian Dollar (up 0.32%) and losing ground to the British Pound and Euro [1][3]. GBP/USD rebounded above 1.3500, filling its weekly bearish gap, as the USD failed to sustain safe-haven gains amid fading Fed rate hike expectations [3]. The Japanese Yen underperformed, with GBP/JPY rising to near 214.60, as doubts grew over a Bank of Japan rate hike in the face of negative energy shocks [4].
Oil markets responded sharply to the Strait of Hormuz turmoil. Brent crude rebounded toward USD 95/bbl after closing at USD 90/bbl on Friday, with Danske Bank warning that prices could climb above USD 100/bbl if flows through the strait do not resume [6]. The US Treasury extended Russian oil sanctions exemptions by one month, adding to uncertainty [6]. ING analysts noted that the US Dollar Index (DXY) is likely to trade in the 98.00/98.50 range as hopes for Fed easing fade, with persistent high energy prices threatening to de-anchor inflation expectations [5].
Federal Reserve officials voiced concerns about the inflationary impact of prolonged Middle East conflict. Fed Governor Christopher Waller stated that the job market’s break-even rate is likely near zero and warned that sustained high oil prices could heighten both inflation and employment risks [2][5][7]. San Francisco Fed President Mary Daly is monitoring whether rising oil prices are feeding into broader inflation [2][7]. The Swiss Franc, another safe-haven, steadied above 0.7800 against the USD, with the SNB signaling readiness to intervene in FX markets if CHF appreciates excessively due to geopolitical tensions [7].
Looking ahead, markets remain focused on the outcome of US–Iran negotiations, the expiration of the ceasefire, and key economic data releases, including Canadian and UK inflation figures, UK labor market data, and the Japanese CPI [1][4]. Analysts warn that if the Strait of Hormuz remains closed and energy prices surge, the risk of persistent inflation and delayed Fed easing will rise, keeping volatility elevated across asset classes [5][6].
CONCLUSION
The renewed closure of the Strait of Hormuz and escalating US–Iran tensions have triggered a risk-off move in global markets, sending equities lower and oil prices higher. Persistent energy shocks are fueling inflation concerns and diminishing hopes for near-term Fed easing, with analysts warning of further volatility if the crisis is not resolved. Investors are bracing for a turbulent week as geopolitical developments and key economic data shape market direction.