Market sentiment soured early on Monday after a brief pause on Friday. Over the weekend, reports indicated that U.S.-Iran talks had failed, and U.S. President Donald Trump warned of a blockade on Iranian ports starting at 14:00 GMT. This news added to the negative sentiment, compounded by weak U.S. data on Friday, mixed Federal Reserve comments, and rising concerns about an energy crisis in major economies.
Early on Monday, President Trump confirmed via Truth Social that the United States would begin a blockade on ships entering or leaving Iranian ports on April 13 at 10:00 AM ET (14:00 GMT). This move specifically targets vessels linked to Iranian ports, effectively blocking shipments, especially oil and gas. The U.S. is challenging Iran’s control over the Strait of Hormuz, a critical waterway for global oil transport. Iran has historically allowed a limited number of ships, mostly those with ties to its interests or its allies, like China, to pass. Now, the U.S. intends to stop these shipments entirely, escalating tensions.
The announcement caused oil prices to spike and the U.S. dollar to rebound, as investors sought safe havens amid fears of disruptions to global shipping and energy supplies. However, the U.S. Central Command later clarified that the blockade would not affect transit through the Strait of Hormuz to non-Iranian ports. Iran’s military warned that any U.S. naval movement toward the Strait would be viewed as a breach of the ceasefire, raising the risk of a miscalculation. Meanwhile, Israel has raised its military readiness in anticipation of potential hostilities.
Despite Trump signaling little interest in resuming negotiations, some reports suggest that diplomacy is still on the table, with a second round of talks potentially occurring in the coming days. Some analysts believe the blockade is a pressure tactic to force Iran into concessions without escalating the situation.
On Friday, U.S. markets had a brief respite with the release of the Consumer Price Index (CPI) and Michigan Consumer Confidence data. The CPI showed a sharp rise, driven mainly by energy costs, while core inflation remained relatively stable. Real weekly earnings, however, fell by 0.9%, suggesting that consumer purchasing power is being squeezed.
The market response saw only mild weakness in the U.S. dollar, with expectations for Federal Reserve action remaining steady. Fed member Mary Daly indicated that if oil prices were to fall, a rate cut could be considered, although this remains uncertain.
The University of Michigan’s consumer sentiment survey showed a sharp drop in confidence, with the preliminary April index falling to a record low of 47.6, far below the expected 52.0. This was largely due to the impact of rising gasoline prices and the ongoing conflict. Inflation expectations also rose, with one-year expectations increasing to 4.8%, from 3.8%. While long-term expectations stayed stable, the surge in short-term inflation concerns indicates growing anxiety about price pressures in the near future.
Geopolitical developments last week were centered around positioning ahead of potential ceasefire and peace talks between U.S. and Iranian representatives. While there is little expectation of a sweeping resolution, there is cautious optimism for incremental progress, particularly with regard to reopening the Strait of Hormuz. Following a 14-day truce, a limited number of ships transited the Strait, but Israeli strikes on Hezbollah in Lebanon led to another shutdown. Israel, however, seems to be aligning with a ceasefire framework, potentially paving the way for progress in upcoming talks.
In India, fuel sales caps have been introduced due to supply concerns. Jio-bp reportedly capped fuel sales at 50L per customer, affecting transport sectors reliant on diesel. Although the company denied formal restrictions, these moves signal tightening supply conditions as geopolitical risks disrupt crude supply chains through the Middle East.
Against this backdrop, the U.S. Dollar Index (DXY) rebounded after its biggest weekly loss since January, while crude oil prices opened the week with a gap-up, recovering from their biggest weekly loss since April 2020. Meanwhile, gold and cryptocurrencies retreated after a two-week rally, and equities in the Asia-Pacific region drifted lower despite Wall Street’s mixed performance. In currency markets, EUR/USD pulled back from a six-week high, GBP/USD posted mild losses, and USD/JPY rose for the third consecutive day. USD/CAD extended its gains despite strong oil prices and a positive Canadian employment report.
On Monday, a risk-off sentiment helped the U.S. Dollar recover its previous losses, putting downward pressure on other major currencies. This shift caused EURUSD and GBPUSD to fall after five days of gains, while USDJPY rose for the second consecutive day. The recent losses in EURUSD did little to dampen optimism in the Eurozone following Hungary's election results, which saw Viktor Orbán defeated after 16 years in power. The outcome was viewed as a positive for the European Union, as it could reduce fragmentation within the bloc and potentially unlock more EU funding, thereby supporting the euro.
Meanwhile, USDJPY’s rise seemed to overlook the Japanese yen’s traditional safe-haven status, the Bank of Japan’s hawkish stance, and the strength of Japanese Government Bond (JGB) yields.
In Asia, Japan's 10-year yield surged to a 29-year high, driven by inflation concerns tied to rising oil prices. This development added to broader market unease about global inflationary pressures.
The commodity-linked currencies—AUDUSD, NZDUSD, and USDCAD—all weakened against the U.S. Dollar as market sentiment soured, exacerbated by concerns about further economic struggles in nations reliant on commodity exports, particularly due to the ongoing energy supply crisis. As a result, AUDUSD and NZDUSD both dropped for the second consecutive day, while USDCAD extended its rebound from Friday, despite crude oil prices—Canada’s key export—posting impressive gains after a significant slump.
In New Zealand, the services sector continued to show signs of distress, with the BusinessNZ Performance of Services Index (PSI) falling to 46.0 in March. This marked a deeper contraction in activity, suggesting ongoing weakness in the economy.
Meanwhile, Canada's March employment report showed modest improvement, with 14.1K jobs added, in line with expectations. The unemployment rate remained steady at 6.7%, signaling a stabilization in the labor market. However, the job gains were largely in part-time positions, indicating that while hiring is steady, it remains slow. The report also highlighted that wage pressures persist, keeping inflation risks alive and suggesting the labor market isn't yet on a solid footing.
WTI crude oil started the trading week on a strong note, initially surging by around 10% intraday before settling at $104.00 by press time, still up nearly 8.5% on the day. This came after a sharp 15% drop in oil prices the previous week, the largest weekly decline since March 2020, as supply concerns eased. The recent spike in oil prices can be attributed to escalating tensions, including President Trump's renewed threat to block Iranian ports, Israel's military preparations for a potential conflict, and Iran's firm stance against U.S. and Israeli pressure while maintaining control over the strategic Strait of Hormuz. These geopolitical developments have contributed to the latest surge in crude oil prices.
After a two-week uptrend, prices of gold, Bitcoin (BTC), and Ethereum (ETH) pulled back as market sentiment soured and the U.S. Dollar rebounded. Despite a mixed performance in U.S. equities, the negative sentiment spilled over into the Asia-Pacific region, where stock markets also fell.
Markets had initially reacted positively on Friday when President Trump softened his previous aggressive rhetoric. U.S. equities rallied at first but ended the day with mixed results. The Dow closed down 269.23 points, or 0.56%, at 47,916.57, while the S&P 500 dropped 7.77 points, or 0.11%, ending at 6,816.89. However, the Nasdaq bucked the trend, rising by 80.48 points, or 0.35%, to close at 22,902.89.
Monday’s economic calendar is light, with only U.S. Existing Home Sales on the agenda. However, U.S. President Donald Trump's threat to block Iranian ports starting early Monday could keep traders focused on risk-related news.
The U.S. Dollar (USD) has struggled to capitalize on the risk aversion, largely due to mostly downbeat economic data, apart from inflation numbers. Any further economic deterioration could add additional downward pressure on the Greenback. That said, fears of a potential full-blown war in Iran, along with the resulting supply disruptions, might complicate the outlook for USD bears.
Despite the Greenback’s challenges, major currencies, cryptocurrencies, and commodities may see some gains. Gold could recover from its early losses if the USD weakens, while crude oil is expected to stay strong due to the ongoing economic uncertainty surrounding Iran, the Strait of Hormuz, and Lebanon. Bitcoin and equities, on the other hand, are likely to face modest losses unless the earnings season delivers positive surprises.
May the trading luck be with you!
