On Monday, the US military launched what it described as 'self-defense' strikes in southern Iran, targeting missile launch sites and boats placing mines, amid ongoing negotiations to end the war between the US and Iran [1][2][3]. President Donald Trump stated on social media that peace talks were 'proceeding nicely,' but the status of negotiations remains unclear, with Washington signaling optimism while Tehran insists no agreement is imminent [1]. Regional officials indicated that the US was close to a deal to end the war, reopen the Strait of Hormuz, and see Iran give up its stockpile of highly enriched uranium, but recent military actions have cast doubt on immediate progress [1][3].
Financial markets responded with caution. Asian equity indices were mixed: Tokyo's Nikkei 225 fell 0.3% to 64,996.09, Hong Kong's Hang Seng gained 0.4% to 25,700.33, Shanghai Composite dropped 0.2% to 4,143.14, South Korea's Kospi jumped 2.6% to 8,047.51, and Australia's S&P/ASX 200 lost 0.4% to 8,657.80 [1]. US futures rose, with the S&P 500 up 0.6% and the Dow Jones Industrial Average up 0.7% early Tuesday [1]. Oil prices were volatile: Brent crude rose $2.05 to $95.47 a barrel after a nearly $5 drop on Monday, while US benchmark crude fell $4.65 to $91.95 a barrel [1]. The reopening of the Strait of Hormuz is seen as pivotal for oil prices, as its closure has disrupted global crude deliveries [1].
Currency markets reflected heightened geopolitical risk. The US Dollar appreciated against the Japanese Yen for a second day, reaching session highs above 159.00, though remaining below last week's high of 159.35 [2]. The US Dollar Index (DXY) regained positive traction, trading just above 99.00 and up over 0.10% for the day, reversing part of the previous day's slide to a one-week low [3]. The safe-haven appeal of the Dollar was supported by fading optimism over a US-Iran peace deal and ongoing geopolitical risks [2][3]. Technical indicators for USD/JPY and DXY suggest a neutral-to-positive tone, with resistance levels at 159.35 and 99.54, respectively, and support at 158.65-158.75 for USD/JPY and 99.08 for DXY [2][3].
In Japan, Bank of Japan Deputy Governor Ryozo Himino commented that the central bank should consider the economic consequences of the Middle East conflict when determining the timing and pace of future interest rate hikes. The BoJ kept its policy unchanged in April, with three members calling for a hike, raising expectations for possible tightening at the June meeting [2].
According to Stephen Innes of SPI Asset Management, 'Markets are behaving as though a full Iran breakthrough already exists, even though the hardest parts of the negotiation remain unresolved,' highlighting the market's cautious optimism [1]. However, the lack of clarity and ongoing military actions have kept investors wary, with the US Dollar benefiting from safe-haven flows while oil and equity markets remain volatile [1][2][3].
CONCLUSION
The US strikes in southern Iran have injected fresh uncertainty into peace negotiations, prompting mixed reactions across global markets. While the US Dollar and oil prices have shown volatility amid geopolitical risks, equity markets remain cautious, and central banks are monitoring developments closely. The market takeaway is one of guarded optimism, tempered by the unresolved nature of the US-Iran conflict and its potential impact on global economic stability.