Risk sentiment turned cautious as markets in the U.S., Europe, and the UK reopened after the long weekend. Investors balanced ongoing U.S.-Iran negotiations against fresh military tensions, while also preparing for key inflation and economic data later this week. Mixed Asia-Pacific updates further capped market optimism.
With trading activity relatively light earlier in the week due to market holidays, investor attention stayed heavily focused on geopolitical developments. Hopes remain that negotiators can at least finalise a preliminary Memorandum of Agreement (MOA) as a foundation for broader future talks.
Diplomatic talks in Doha continued to support hopes for a possible agreement, even as both sides exchanged attacks. Traders increasingly viewed the situation as moving toward resolution rather than prolonged conflict. Reports also suggested the Strait of Hormuz could reopen within about 30 days if negotiations progress successfully.
Trump eased his earlier stance on Iran’s enriched uranium, saying the material could either remain in Iran under International Atomic Energy Agency (IAEA) supervision or be transferred to another country instead of the U.S. Iran reportedly proposed China as an alternative destination, narrowing differences between both sides. Pakistan’s Asim Munir also joined discussions in Doha, adding to expectations that negotiations may be approaching a critical phase.
At the same time, U.S. Central Command (CENTCOM) confirmed strikes on missile launch sites and mine-laying vessels in southern Iran. Iran’s Islamic Revolutionary Guard Corps (IRGC) reportedly responded with attacks targeting ships near the Gulf region, while explosions were reported in Bandar Abbas, Sirik, and Jask. Despite the confrontation, CENTCOM maintained that the ceasefire arrangement remains active.
U.S. Secretary of State Marco Rubio said Iranian and American officials spent Monday in Qatar working on the wording of an initial framework agreement. He added that completing the draft could still take several days. Rubio also stressed that the Strait of Hormuz would reopen “one way or another,” signalling Washington’s determination to secure the route.
In financial markets, the U.S. Dollar Index (DXY) rebounded and extended its recent upward momentum, limiting advances in EURUSD, GBPUSD, AUDUSD, and NZDUSD. USDJPY remained directionless, while USDCAD recovered modestly. Crude oil prices stabilised after sharp losses, gold retreated from resistance levels, and Bitcoin (BTC) and Ethereum (ETH) posted mild pullbacks. Asia-Pacific equities also traded cautiously as investors awaited stronger participation from Western markets after the holiday reopening.
EURUSD and GBPUSD retreat from weekly highs as cautious market sentiment replaces the early-week optimism. A stronger U.S. Dollar ahead of mid-tier economic data and the full return of global market activity also pressure both currency pairs.
Meanwhile, ongoing trade and political uncertainties across the Eurozone and the UK continue to weigh on the Euro (EUR) and the British Pound (GBP), even as European Central Bank (ECB) and Bank of England (BoE) officials maintain a hawkish stance.
Earlier in the session, European Central Bank (ECB) Executive Board member Isabel Schnabel signalled that another interest rate hike in June may still be necessary.
USDJPY trades in a narrow range as a firmer U.S. Dollar and mixed economic signals from Japan support the pair, while hawkish Bank of Japan (BoJ) expectations limit upside momentum.
Japan’s Finance Ministry reported that the country’s net external assets rose 4.4% year-on-year to 561.75 trillion yen, or nearly $3.53 trillion, driven by overseas investment, mergers and acquisitions (M&A), and gains in foreign asset values. Despite the increase, Japan slipped behind China and Germany to rank as the world’s third-largest creditor nation.
Bank of Japan (BoJ) Deputy Governor Ryozo Himino repeated that additional rate hikes remain possible, although future policy decisions will depend on the impact of Middle East tensions on inflation and economic growth. Finance Minister Katayama also signalled willingness to support households if energy-led inflation worsens, while Deputy Chief Cabinet Secretary Ozaki said no decision has been taken regarding possible consumption tax changes.
Adding to the mixed outlook, Japan’s March Leading Economic Index eased to 116.4 from 116.5, while the Coincident Index fell to 114.0 from 114.5.
Commodity-linked currencies soften as early-week optimism fades and the U.S. Dollar rebounds from its lows. This shift drives AUDUSD down from its weekly high, while NZDUSD declines around 0.5% intraday. At the same time, USDCAD extends gains, recovering more than its previous session’s losses and once again testing the 200-day Simple Moving Average (200-day SMA) resistance.
However, the move in USDCAD appears disconnected from supportive external factors such as higher crude oil prices, Canada’s key export, as well as positive trade developments between Canada and India.
Canadian Prime Minister (PM) Mark Carney confirmed that Canada and India are in talks for a free trade agreement (FTA), with energy, agri-food, technology, and education emerging as priority sectors.
WTI crude oil plunged nearly 6.0% on the Globex session to reach a two-week low before rebounding about 1.5% intraday on Tuesday. The recovery is linked to renewed uncertainty around a U.S.-Iran peace agreement and doubts over a smooth reopening of the Strait of Hormuz without further military friction, both of which helped trigger a corrective bounce.
Gold comes under pressure as the U.S. Dollar strengthens and prices face technical resistance near $4,570. The metal reverses the previous session’s gains and shows renewed selling interest late in the month, with May still on track to extend a broader three-month downtrend.
Equities in Japan, China, and Australia trade slightly lower after an upbeat start to the week, as markets adjust ahead of the full return of global participation and ongoing uncertainty around the Strait of Hormuz reopening without further military escalation.
A firmer U.S. Dollar also dampens risk appetite, limiting enthusiasm across equities and cryptocurrencies. Bitcoin (BTC) and Ethereum (ETH) both edge lower, giving back part of the previous day’s gains, as traders position cautiously ahead of the return of U.S. markets after the long weekend, with expectations still tilted toward a firm opening.
After a subdued start to the week due to public holidays in the U.S., Europe, and the UK, Tuesday could bring sharper volatility as global markets fully reopen.
The economic calendar is relatively light but still includes key U.S. releases such as Consumer Confidence, the Chicago Fed National Activity Index, the Dallas Fed Manufacturing Business Index, and the Housing Price Index. Mid-tier speeches from European Central Bank (ECB) officials will also be in focus.
However, the main driver remains geopolitical developments around the U.S.-Iran peace process, where initial progress on a Memorandum of Understanding (MoU) has raised hopes of a broader agreement. Markets appear increasingly priced for a diplomatic outcome, though the situation in Doha remains fluid and closely watched.
If optimism around the agreement fades, risk aversion could strengthen the U.S. Dollar (USD), especially if supported by steady data and a still-hawkish Federal Reserve (Fed) outlook. A stronger Greenback may pressure EURUSD, GBPUSD, AUDUSD, and NZDUSD, while also challenging USDJPY and USDCAD downside bets.
In commodities, crude oil (WTI crude oil) could see a partial recovery after recent losses, while gold (XAUUSD) may extend its pullback from resistance near $4,570. Cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH) may struggle to maintain early-week gains, and global equities are likely to trade in a mixed, cautious tone as investors reassess risk.
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