The US Dollar Index (DXY) remained resilient, trading near 99.60–99.65 during the Asian session on Thursday, as geopolitical uncertainty intensified following Iran's rejection of a US ceasefire proposal and 15-point settlement plan delivered via Pakistan by the Trump administration [1][3][4]. Senior Iranian officials are reviewing the US proposal but have shown no willingness to engage in talks, instead presenting a five-point plan that includes demands such as sovereign control over the Strait of Hormuz, closure of all US bases in the Gulf, reparations, lifting of sanctions, and unrestricted missile program development [1][3][4]. Iran's Fars news agency and the Wall Street Journal reported that Tehran does not see truce and talks as viable under current conditions [4].
The heightened tensions in the Middle East have driven energy prices higher, stoking inflation concerns and reinforcing expectations that the Federal Reserve (Fed) will keep rates steady this year [1][2][4]. TD Securities strategists noted that the Fed faces mixed signals due to the oil shock, with the dual mandate in tension, and expect the Fed to remain on hold in the near term before potentially cutting rates later in 2026 if conditions permit [1]. Traders have nearly priced out the possibility of further rate cuts by the Fed and are rapidly increasing bets for a hike by the end of this year, which has triggered a fresh leg up in US Treasury bond yields and supported the US Dollar [2][4].
Gold (XAU/USD) consolidated below the $4,500 mark, with its upside capped by the firmer US Dollar and expectations of a hawkish Fed. The effective closure of the Strait of Hormuz has acted as a tailwind for crude oil prices, further fueling inflationary concerns [2]. Technical analysis indicates a mildly bearish near-term bias for gold, with the price holding below the 100-day SMA and the MACD in negative territory [2].
The uncertainty has also impacted other currencies. The Australian Dollar (AUD/USD) traded flat around 0.6950, subdued by a firm US Dollar and softer domestic inflation data, with Australia's annual CPI slowing to 3.7% in February from 3.8% in January [3]. The New Zealand Dollar (NZD/USD) traded cautiously near 0.5800, pressured by Iran's rejection of the ceasefire proposal and the resulting risk-off sentiment. The Reserve Bank of New Zealand has warned of high inflation and kept the possibility of either rate hikes or cuts open due to global uncertainty [4].
Market participants are awaiting further developments in the Middle East and upcoming US economic data, such as Thursday’s weekly Initial Jobless Claims, for additional direction [1][2].
CONCLUSION
Geopolitical tensions stemming from Iran's rejection of the US ceasefire proposal have bolstered the US Dollar and heightened inflation concerns, leading markets to expect the Federal Reserve to maintain a hawkish stance. Risk sentiment remains cautious, with safe-haven demand supporting the Greenback and weighing on commodity-linked and risk-sensitive currencies. Market volatility is expected to persist as investors monitor further developments in the Middle East.