A surge in geopolitical tensions surrounding the Strait of Hormuz has driven significant market movements, with the Euro (EUR) strengthening against the US Dollar (USD) as investors brace for the outcome of a deadline set by US President Donald Trump for Iran to reach a deal or face military action. At the time of reporting, EUR/USD traded around 1.1571, marking its second consecutive day of gains, while the US Dollar Index (DXY) hovered at 99.90 after failing to hold above 100 [1]. Trump warned that the US would destroy Iran’s energy and civilian infrastructure if no agreement is reached by 8:00 p.m. Eastern Time, and Iran has suspended all diplomatic and indirect communication with the US [1].
The conflict has already pushed oil prices higher, with TD Securities projecting that crude could surge by $50 or more if hostilities persist, and that $90–100 oil is likely to remain a reality well into 2027, even if the conflict ends soon, due to ongoing supply deficits and low inventories [4]. The disruption of flows through the Strait of Hormuz is keeping the market tight, and countries like China and Japan are expected to replenish inventories rapidly once conditions allow [4]. However, Deutsche Bank notes that the Brent futures curve is sharply backwardated, with 6- and 12-month contracts well below spot prices, indicating that markets currently expect the conflict to be short-lived and are not pricing in a sustained stagflationary shock akin to previous oil crises [5].
Rising energy costs are fueling inflation, particularly in the Eurozone, where the Harmonized Index of Consumer Prices (HICP) rose 1.2% MoM in March (up from 0.6% in February), and annual inflation accelerated to 2.5% from 1.9% [1]. In the US, March CPI is expected to jump, with forecasts ranging from a 0.9% to 1.0% MoM increase, the largest since June 2022, driven by a 36.2% rise in gasoline prices in March and continued gains in April [1][2]. The ISM Services Price Paid index surged from 63.0 in February to 70.7 in March, the highest since October 2022, signaling broadening inflation pressures [2].
Central banks are responding cautiously. The Federal Reserve is expected to keep rates on hold, with New York Fed President John Williams stating policy is “well-positioned to wait and see,” though he acknowledged the war could add “a tenth or two” to core inflation [1]. The ECB, meanwhile, may deliver multiple rate hikes if the Iran crisis persists, according to policymaker Pierre Wunsch [1]. MUFG’s Derek Halpenny notes that while Fed minutes may sound more hawkish, future rate cuts are still anticipated as growth fundamentals remain soft [2].
Gold prices have remained relatively stable, trading in a range of USD 4500–5000 with an upside bias, as conflicting geopolitical signals and elevated US real yields near 2% cap recovery potential. DBS Group Research highlights that any breakout in gold will depend on further geopolitical escalation or sustained US dollar weakness [3].
CONCLUSION
The escalating Iran-US standoff has driven oil prices higher and stoked inflation fears, with markets closely watching for further escalation or resolution. While energy and currency markets are reacting to immediate risks, futures pricing suggests investors still expect the conflict to be temporary. Central banks remain cautious, and the outlook for inflation and growth will hinge on both geopolitical developments and upcoming economic data.