The negative trend is developing amid rhetoric from President Donald Trump, who said that the US-Iran confrontation could end within two to three weeks. Tomorrow at 03:00 (GMT+2), the head of the White House will address the nation and may clarify details of the country’s exit plan from the conflict.
It is worth noting that scaling down the operation does not imply signing a peace treaty with Tehran or reopening the Strait of Hormuz. Investors and forex traders reacted to these statements with cautious optimism, since the future course of events in the Middle East remains uncertain: the Islamic Republic may reject a peaceful settlement without security guarantees and reparations, while its continued control over the key maritime route would complicate oil transportation even under a permit-based system for tanker passage.
Earlier, The Wall Street Journal reported that the United Arab Emirates (UAE) is preparing to enter the conflict on the US side in the near future and take part in the forceful reopening of the key shipping route. Official Tehran declared its readiness to target assets linked to 18 technology giants, including Nvidia Corp., Apple Inc., Microsoft Corp., Alphabet Inc., Cisco Systems Inc., Intel Corp., Oracle Corp., International Business Machines Corp., Tesla Inc., and The Boeing Co., if the US and Israel continue destroying Iran’s civilian infrastructure. Meanwhile, in March the consumer confidence index rose from 91.0 to 91.8 points instead of the expected decline to 87.8, although households remain concerned about the risk of faster inflation due to trade tariffs and rising energy prices.
Eurozone
The euro is weakening against the pound but strengthening against the yen and the US dollar.
Investors and forex traders are assessing March business activity data: the EU manufacturing index rose from 50.8 to 51.6 points, exceeding forecasts of 51.4 points, while in Germany, the bloc’s largest economy, it increased from 50.9 to 52.2 points instead of the expected 51.7. Despite the positive figures, the survey showed that European manufacturers faced a sharp rise in raw material costs and supply chain disruptions due to the US-Iran conflict, while demand for products remained relatively weak. Meanwhile, European Central Bank Governing Council member Primož Dolenc said the region’s economy may already be on an “unfavorable” path, as continued hostilities in the Middle East could raise price and wage expectations among companies and households, triggering self-sustaining inflation.
United Kingdom
The pound is strengthening against the euro, yen, and US dollar.
March business activity data published today showed the manufacturing index falling from 51.7 to 51.0 points versus forecasts of 51.4, amid rising energy costs and a decline in new orders. In addition, according to the Bank of England’s financial stability report, a continuation of the Middle East conflict would slow economic growth, accelerate inflation, and increase the likelihood of simultaneous risks emerging in sovereign debt and private credit markets.
Regulators said investors hope for a quick end to the hostilities, but emphasized the high level of uncertainty regarding the long-term consequences of the operation. Overall, the condition of the financial sector remains stable, while household, corporate, and banking liquidity is satisfactory, and debt levels remain low by historical standards.
Japan
The yen is weakening against the pound and euro but strengthening against the US dollar.
March business activity data published today showed the manufacturing index declining from 53.0 to 51.6 points, although analysts had expected 51.4. According to the survey, output and new orders increased for a third consecutive month, but more slowly than expected, while higher raw material and energy costs drove product prices upward. Business confidence declined from February’s highest level in the past 20 months, but remained relatively strong, supported by expectations of rising demand in artificial intelligence, semiconductor, and defense-related industries. Meanwhile, the Tankan sentiment index for large manufacturers rose from 16.0 to 17.0 points in the first quarter, while the reading for service-sector companies increased from 34.0 to 36.0 points. Bank of Japan board member Toyoichiro Asada said that, against the backdrop of the Middle East conflict, the country could face stagflation risks that would be difficult to overcome through monetary policy.
Australia
The Australian dollar is strengthening against the yen and the US dollar, but shows mixed dynamics against the pound and the euro.
Traders are assessing the March manufacturing activity index, which fell from 51.0 to 49.8 points and entered stagnation territory under pressure from higher energy prices caused by the US-Iran confrontation and weaker new orders. As a result, businesses are being forced to limit hiring and investment in the sector. Thus, the negative impact on the domestic economy remains in place, reducing the likelihood of further monetary tightening by the Reserve Bank of Australia.
Oil
Oil prices are showing mixed dynamics.
At the start of the trading session, prices were under pressure due to President Donald Trump’s intention to end the conflict with Iran within two to three weeks without seeking a peace agreement, as well as a weekly increase in fuel inventories, which rose by 10.263 million barrels instead of the expected decline of 1.300 million barrels, according to data from the American Petroleum Institute (API).
At present, the upward trend has resumed as investors and forex traders remain concerned that the Strait of Hormuz could stay blocked even if Washington withdraws from the hostilities. If the waterway remains under Iran’s control and tanker traffic stays restricted, the risks of a tighter global crude oil supply will continue to rise. At 16:30 (GMT+2), oil inventory data from the US Energy Information Administration (EIA) will be released. Analysts expect an increase of 2.000 million barrels, which could add further negative pressure to prices.
Expert insight:
Forex markets remain highly sensitive to geopolitical developments and energy price volatility. If tensions in the Middle East persist, safe-haven demand could return quickly, supporting the US dollar. However, continued optimism around de-escalation may keep pressure on the greenback in the short term.
