Over the weekend, US President Donald Trump rejected Iran's latest peace proposal, labeling it 'totally unacceptable' in a statement reported by Bloomberg on Sunday [1][2][3]. This development dashed market hopes for a swift resolution to tensions surrounding the Strait of Hormuz, a critical maritime chokepoint through which approximately 20% of the world's traded oil flows, or about 20 million barrels per day, according to the US Energy Information Administration [1][2]. Iran's proposal, as reported by Iranian state media and CNN, included demands for US compensation for war damages, recognition of Tehran's authority over the Strait of Hormuz, the release of frozen Iranian assets, and the lifting of sanctions [2]. Iranian officials also emphasized the need to end conflict across all fronts, particularly in Lebanon, and to address the security of shipping routes, though no timeline or specifics were provided for reopening the strait [3].
The rejection of the peace initiative triggered a sharp reversal in market sentiment. Prior to the announcement, optimism about a potential deal had buoyed risk appetite, with Japan's Nikkei surging over 4% in a single session, commodity-linked currencies like the Australian and New Zealand dollars strengthening, and the S&P 500 briefly touching record territory near 7,385 [1]. However, following the news, risk-off sentiment returned: the US Dollar Index (DXY) rose 0.25% to around 98.10, and the USD/CHF pair climbed to near 0.7785 during Asian trading on Monday [2][3]. The US Dollar outperformed its peers, particularly the New Zealand Dollar, as shown in the latest currency heat map [2]. S&P 500 futures slipped 0.15% to 7,390, reflecting a more cautious market mood [2].
The renewed geopolitical uncertainty and the prospect of a prolonged disruption in oil flows through the Strait of Hormuz lifted global oil prices and stoked fears that, combined with robust US Nonfarm Payrolls (NFP) data for April, the Federal Reserve might consider raising interest rates this year [2]. The NFP report showed an increase of 115,000 jobs in April, down from March's 185,000 but well above the market forecast of 62,000, while the unemployment rate held steady at 4.3% [3].
Looking ahead, investors are turning their attention to President Trump's upcoming visit to China from May 13-15. Market experts cited by IG Markets believe Trump may urge Beijing to use its influence over Iran to help broker a comprehensive ceasefire and resolve the ongoing energy disruption caused by the Hormuz closure [2]. Meanwhile, analysts suggest that the extended Middle East conflict and fragile ceasefire could continue to support safe-haven demand for the US Dollar in the near term [3].
CONCLUSION
President Trump's rejection of Iran's peace proposal has reignited geopolitical tensions, driving oil prices higher and boosting the US Dollar as investors seek safe havens. The market is now focused on potential diplomatic developments during Trump's visit to China and the possibility of further Federal Reserve action if energy disruptions persist. The situation remains fluid, with significant implications for global markets and currency movements.