Market sentiment remains weak after reports of intensified U.S.-Israel strikes on Iran. Risk-off sentiment increased as the Iranian Revolutionary Guards reportedly took control of the Strait of Hormuz, a key route carrying about 20% of global oil flows. The Group of Seven (G7) and the International Energy Agency (IEA) are considering releasing emergency oil reserves to control the record surge in crude oil prices. Former United States President Donald Trump also expressed dissatisfaction with Israel’s attacks on Iranian oil facilities. Weak U.S. employment data, rising fears of a global energy supply shortage, and caution ahead of major U.S. inflation data further pressured markets.
Over the weekend, strikes reportedly hit around 30 Iranian oil depots, followed by Iranian retaliation targeting oil facilities and water desalination plants. Israeli Prime Minister Benjamin Netanyahu, former President Donald Trump, and United States Secretary of Defense Pete Hegseth warned that stronger military action could still follow. Around 20 million barrels per day of the roughly 105 million barrels consumed globally pass through the Strait of Hormuz, which is now effectively closed. Exports from countries such as Iraq and Kuwait are slowing due to shipping disruptions, making supply replacement extremely difficult.
As per the latest U.S employment report, Nonfarm Payrolls (NFP) fell by 92,000 in February against expectations for a 55,000 increase, while the previous two months were revised down by 69,000. The unemployment rate rose to 4.4%, and labour force participation declined to 62.0%. Job losses were broad across services, manufacturing, healthcare, leisure, and goods sectors, while average hourly earnings increased 0.4% month-on-month. Markets are now pricing around 50 basis points (bps) of Federal Reserve (Fed) rate cuts by year-end.
Federal Reserve officials remain divided. Austan Goolsbee of the Federal Reserve Bank of Chicago (Chicago Fed) warned that oil shocks from the Iran conflict could push the economy toward stagflation, but still expects lower rates by 2026. Stephen Miran, Governor of the Federal Reserve Board, supports rate cuts due to weak employment, while Beth Hammack of the Federal Reserve Bank of Cleveland (Cleveland Fed), Jeff Schmid of the Federal Reserve Bank of Kansas City (Kansas City Fed), and Susan Collins of the Federal Reserve Bank of Boston (Boston Fed) favour keeping policy tight until inflation clearly declines. The Federal Open Market Committee (FOMC) meeting on March 18 is expected to be closely watched.
Elsewhere, China’s Consumer Price Index (CPI) rose 1.3% year-on-year in February compared with expectations of 0.8%, while the Producer Price Index (PPI) fell 0.9% year-on-year, marking the highest CPI reading in three years and signalling further pressure from rising energy prices.
In currency and commodity markets, the U.S. Dollar Index (DXY) rose to the highest level since late November 2025, while West Texas Intermediate (WTI) crude oil surged nearly 30% intraday. Gold and silver prices pulled back. EURUSD fell to the lowest level since November 2025, GBPUSD weakened, USDJPY hit a six-week high, while AUDUSD and NZDUSD declined. USDCAD also moved lower despite the stronger dollar as rising oil prices supported Canada’s exports. Bitcoin (BTC) and Ethereum (ETH) posted a corrective rebound, while Asia-Pacific equities declined following the weak performance on Wall Street.
The stronger U.S. Dollar and rising energy crisis risks in Europe pushed EURUSD to the lowest level since November 2025, while GBPUSD also declined. USDJPY rose to a six-week high, ignoring mixed Japan data and hawkish signals from the Bank of Japan (BoJ).
In Europe, the euro moved closer to its November lows as the conflict increased fears of an energy shortage. European economies depend heavily on Middle East oil and natural gas from Qatar, while Isabel Schnabel of the European Central Bank (ECB) warned that the conflict raises inflation risks.
In Japan, labour cash earnings rose 3.0% year-on-year in January, and real earnings increased 1.4%. Japan’s current account surplus reached ¥941.6 billion in January, while the country posted a record ¥31.88 trillion surplus for 2025. Prime Minister Sanae Takaichi warned that the Middle East conflict could affect the economy and said Japan had to pay nearly 70% more dollars within a week to secure the same amount of oil.
Risk aversion and a strong U.S. Dollar outweighed China’s positive inflation data, putting downward pressure on AUDUSD and NZDUSD. Meanwhile, USDCAD fell for the second consecutive day to a one-month low, supported by strong crude oil prices, Canada’s key export, and cautious optimism ahead of this week’s Canadian employment report.
Oil prices surged as buyers rushed to secure supply, rising nearly 30% intraday and holding around a 25% gain, marking the largest one-day jump on record and surpassing the April 2, 2020, rally in West Texas Intermediate (WTI) crude oil. Donald Trump stated that oil prices would fall rapidly if Iran abandons its nuclear weapons programme, which could provide a possible path to a ceasefire instead of earlier demands for “unconditional surrender.” Rising oil prices are also increasing Iran’s leverage as disruptions in the Strait of Hormuz place economic pressure on the U.S.
Energy risks expanded after reports that Bahrain’s Bahrain Petroleum Company (Bapco) refinery was struck by an Iranian drone. Energy accounts for about 70% of Bahrain’s Gross Domestic Product (GDP), and the Bapco refinery produces about 405,000 barrels per day, compared with roughly 550,000 barrels per day from the Ras Tanura facility operated by Saudi Arabian Oil Company (Saudi Aramco).
Notably, Gold and silver struggled to attract buyers as a stronger U.S. Dollar weighed on bullion, despite China’s heavy purchases and technical breakouts keeping bullish sentiment alive. China increased its gold reserves for the sixteenth straight month, reaching 74.22 million troy ounces in February 2026 from 74.19 million in January, valued at $387.59 billion.
Major U.S. stock indices closed lower on Friday, pulling Asia-Pacific markets down on Monday. The Dow Jones Industrial Average fell 453.19 points to 47,501.55, the S&P 500 dropped 90.69 points to 6,740.02, the NASDAQ Composite declined 361.31 points to 22,387.68, and the Russell 2000 lost 60.27 points to 2,525.30. For the week, the Dow fell 3.01%, the S&P 500 2.02%, the NASDAQ 1.24%, and the Russell 2000 4.06%.
In crypto markets, BTCUSD (Bitcoin) and ETHUSD (Ethereum) recovered from multi-day lows despite broad market caution and a firmer U.S. Dollar, supported by optimism around the CLARITY Act.
Markets will focus on the Western reaction to Middle East tensions and the record crude oil rally on Monday. U.S. inflation data and Iran war updates will be key for direction this week, while German factory orders, industrial production, and Eurozone Sentix Investor Confidence will drive intraday trading.
Risk aversion is boosting the U.S. Dollar and pressuring gold, silver, major currencies, and other assets. A pullback may occur after the U.S. open if Strait of Hormuz energy supply fears ease; otherwise, the Greenback could continue weighing on cryptocurrencies, commodities, and equities. Crude oil could also see a retracement after its strong gap-up, but energy sellers remain cautious unless Middle East tensions subside.
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