Global financial markets traded cautiously on Tuesday as U.S. President Donald Trump reiterated his ultimatum for Iran to reopen the Strait of Hormuz to all shipping traffic by 8:00 p.m. ET, threatening to bomb Iranian power plants and bridges if his demands were not met [1][2][5][7][11]. Trump stated it was 'highly unlikely' he would extend the deadline, warning of 'the complete demolition' of Iran's critical infrastructure should a deal not be reached [11]. Iran rejected the latest ceasefire proposal, instead calling for a permanent end to the war and dismissing Trump's threats as 'delusional' [1][7][11].
The looming deadline and escalating rhetoric drove oil prices sharply higher. U.S. crude (WTI) jumped $2.41 to $114.82 a barrel, while Brent crude rose $1.46 to $111.23 a barrel, both well above pre-war levels of around $70 [1][6][11]. Rabobank noted that infrastructure damage is mounting, with recent strikes on Iranian and Saudi petrochemical assets, and warned that a prolonged closure of the Strait could prevent a rapid recovery in global oil supply and demand [6]. The risk of a broader energy shock is reflected in survey data showing rising input costs and longer delivery times, with OCBC strategists warning that escalation would trigger a risk-off move, while de-escalation could soften the U.S. dollar [10].
Equity markets responded with cautious optimism. Asian shares mostly rose, with Japan's Nikkei 225 up less than 0.1% to 53,429.56, Australia's S&P/ASX 200 up 1.7%, South Korea's Kospi up 0.8%, and the Shanghai Composite up 0.3% [1]. On Wall Street, the S&P 500 gained 0.4%, the Dow Jones added 165 points (0.4%), and the Nasdaq climbed 0.5% [1][3]. Danske Bank analysts observed that global equities are about 4% above recent lows, with cyclical sectors outperforming and volatility declining as investors increasingly price in a future de-escalation in the Middle East [3].
Currency and bond markets reflected heightened uncertainty. The U.S. Dollar Index (DXY) stabilized near 100.00, supported by safe-haven demand and expectations that the Federal Reserve will hold rates steady, with a 99.5% probability of no change at the April meeting according to CME FedWatch [5][7]. The USD/JPY traded near 160.00, with the yen weakening on concerns about the economic impact of high oil prices on Japan, a major importer [2][4]. EUR/JPY approached March highs at 184.47, as investors worried about inflationary pressures in Japan and the potential for a Bank of Japan rate hike [4]. Treasury yields rose, with the 10-year at 4.3466%, the 2-year at 3.8622%, and the 30-year at 4.9060% [1][11].
Other currencies were also affected. The New Zealand dollar (NZD/USD) struggled near year-to-date lows around 0.5700 amid risk aversion and expectations of a hawkish Fed response to energy-driven inflation [9]. The Canadian dollar was seen as a strong hedge against energy risks, with BBH analysts favoring long CAD positions due to Canada's favorable inflation backdrop and terms of trade boost from higher oil prices [8].
Looking ahead, markets are focused on the outcome of the U.S.-Iran standoff, upcoming U.S. economic data (including FOMC minutes and CPI), and central bank policy signals. Analysts warn that escalation could trigger further risk-off moves and inflationary pressures, while credible de-escalation would likely support global risk assets and soften the dollar [3][10]. Futures markets are pricing a 50% chance of a Bank of Japan rate hike in April and nearly fully pricing a hike before summer, with similar expectations for the European Central Bank, though ECB officials remain non-committal [4].
CONCLUSION
Markets remain on edge as President Trump's deadline for Iran to reopen the Strait of Hormuz approaches, driving oil and inflation fears higher. While equities have rebounded from recent lows, volatility persists and safe-haven demand supports the U.S. dollar and Treasury yields. The market's next moves hinge on whether the standoff escalates or de-escalates, with energy prices and central bank responses in sharp focus.