Global financial markets experienced significant volatility on Monday following escalating tensions in the Middle East, with a marked shift in sentiment after US President Donald Trump announced a five-day pause on planned military strikes against Iranian power plants. Earlier in the session, risk aversion dominated as Trump threatened to attack Iran's power infrastructure if Tehran did not open the Strait of Hormuz within 48 hours, prompting Iran to vow retaliation and threaten indefinite closure of the strait and attacks on US and Israeli regional infrastructure [1][3].
This initial escalation led to sharp declines in risk assets: the Pound Sterling fell 0.6% against the US Dollar to near 1.3260, the US Dollar Index (DXY) surged 0.6% above 100.00, and S&P 500 futures dropped nearly 1% after a 1.5% fall on Friday [1]. Silver prices plummeted 10% to near $61.00, and the AUD/USD pair saw significant losses [2][3]. Safe-haven demand drove the Japanese Yen and US Dollar higher, while commodity currencies and metals suffered [1][2][3][4].
However, market sentiment reversed sharply after Trump posted on Truth.Social that the US and Iran had engaged in 'very good and productive conversations' and that all military strikes would be postponed for five days, contingent on ongoing diplomatic progress [2][3][4]. This announcement triggered a rebound in risk assets: S&P 500 futures surged over 2%, the AUD/USD pair recovered to trade flat around 0.7000, and Silver rebounded strongly to near $68.20 [2][3]. The US Dollar Index gave back its gains, trading almost flat around 99.50 or down 0.2% to near 99.30, depending on the source [2][3]. Oil prices also fell sharply, with WTI dropping from an intraday high of $100.10 to below $90.00 [2].
Currency markets reflected the improved risk appetite. The Japanese Yen, which had strengthened on safe-haven flows, pulled back as EUR/JPY rebounded from intraday lows, though it remained down 0.30% on the day near 183.65 [4]. The Euro and Pound Sterling also saw partial recoveries, though GBP/USD remained under pressure due to lingering geopolitical risks and upcoming UK economic data releases [1][4].
Despite the relief rally, sources note that markets remain cautious given the fluid geopolitical situation. Japanese authorities reiterated their readiness to act against excessive currency volatility, and the Bank of Japan maintained a hawkish stance, while the European Central Bank highlighted increased uncertainty and upside inflation risks due to energy prices [4]. Investors are now focused on upcoming economic data and central bank communications, including UK CPI, Japan's CPI, and a speech from ECB Chief Economist Philip Lane [1][4].
CONCLUSION
President Trump's decision to pause military action against Iran led to a swift reversal in global market sentiment, with risk assets rebounding and safe-haven flows easing. However, the situation remains highly sensitive to further developments in the Middle East, and markets are expected to stay volatile as investors monitor diplomatic progress and key economic data releases.