The ongoing conflict in the Middle East has generated significant volatility across global financial markets, with energy prices, currency pairs, and central bank policy expectations all affected. Despite intense headlines and large market swings, oil prices have not reached new highs in the past three weeks, although they continue to edge higher, with West Texas Intermediate (WTI) trading above $93.50 and up about 1% on the day [1][6]. The German 10-year yield recently hit its highest level since 2011, and equity markets have come under pressure, with the S&P 500 losing about 1.75% and the Nasdaq Composite dropping nearly 2.5% in the latest session [1][6].
Copper prices stabilized and were on track for their first weekly gain of the month after US President Trump extended the Iran deal deadline, which temporarily improved risk sentiment. However, copper has still fallen around 7% this month as uncertainty around US-Iran negotiations and the prolonged conflict—now approaching one month—continues to weigh on demand expectations and broader growth-linked exposure [2].
Currency markets have also responded to the uncertainty. The USD/INR pair jumped to near 95.15 as market sentiment remained cautious amid conflicting reports on US-Iran peace talks. President Trump claimed talks were going 'very well' and announced a 10-day postponement of military strikes on Iran's power plants, allegedly at Iran's request. However, mediators cited by the Wall Street Journal disputed this, stating Iran had not requested a pause and had yet to respond to the US's 15-point plan, which includes opening the Strait of Hormuz and abandoning missile program plans. This disconnect has kept demand for safe-haven assets high, with the US Dollar Index trading close to a three-day high around 100.00 [4][6].
The uncertainty has also affected central bank outlooks. Nordea notes that the ECB is particularly concerned about the inflationary risks from energy shocks, with April rate hikes being priced in but seen as premature without clearer inflation spillovers. The ECB prefers to wait until June for better visibility, though a more forceful response is possible if the situation intensifies [1][5]. Commerzbank has revised its Eurozone growth forecast for 2026 down from 0.9% to 0.6% due to the war, expects fewer ECB hikes than markets, and anticipates more Fed cuts than currently priced, though these may be delayed by higher inflation. Commerzbank projects EUR/USD to recover to 1.21 by mid-2027 after the war ends, citing a weakening dollar [3].
In Norway, Norges Bank delivered a hawkish hold at 4.00%, with internal debate over an immediate hike and an upwardly revised rate path. The bank now expects two 25bp hikes in June and September, followed by cuts from 2027. The EUR/NOK pair briefly fell to 11.10 after the announcement but partially reversed as weaker equities weighed on the Norwegian Krone [7].
Foreign Institutional Investors (FIIs) have been net sellers in the Indian stock market throughout March, offloading Rs. 1,07,009.53 crore, as risk-off sentiment prevails. A Reuters poll indicates the Reserve Bank of India will likely hold rates steady in April, with most respondents expecting no change until at least mid-2027, as inflation expectations have de-anchored amid rising energy prices [4].
CONCLUSION
The Middle East conflict has heightened market uncertainty, driving up energy prices, pressuring equities, and prompting central banks to reassess policy paths. Safe-haven demand has strengthened the US Dollar, while risk assets and growth-linked commodities remain under pressure. Forward guidance from central banks and policymakers remains cautious, with future moves highly dependent on the conflict's evolution and its impact on inflation and growth.