Market euphoria surrounding the two-week ceasefire announcement has proven short-lived, with equity gains from yesterday substantially pared back today. The initial rally reflected hopes for de-escalation, but early implementation challenges and disputes over coverage—particularly regarding Israel’s military actions in Lebanon—have tempered sentiment. Additionally, geopolitical complexity has intensified with discussions around potential US involvement in toll collection for the Strait of Hormuz. Against this backdrop, currency markets have settled into narrow trading ranges, benchmark bond yields have firmed, and the US dollar has largely consolidated within tight bands against the G10 complex, though emerging market currencies remain relatively stable.
United States
The greenback has traded in a confined range against major developed-market peers, reflecting cautious positioning ahead of key economic data. The broad dollar tone remains measured, with the currency neither extending yesterday’s weakness significantly nor mounting a decisive recovery. Today’s economic calendar features personal income and consumption data, though these readings carry limited immediate impact given their backward-looking nature. The February deflator figures predate the Middle East conflict, reducing their relevance for current policy considerations. The March Consumer Price Index, scheduled for release tomorrow, will command considerably more attention from traders and policymakers alike.
Real consumption expenditures are expected to hover near the three-month average of 0.1% after adjusting for inflation, suggesting modest underlying demand momentum. The Atlanta Federal Reserve’s GDP tracker currently estimates Q1 growth at 1.3%, notably below the Bloomberg consensus median forecast of 2.3%. This discrepancy highlights ongoing uncertainty regarding the underlying strength of economic activity. Treasury yields have recouped a portion of yesterday’s decline, with the 10-year benchmark currently trading slightly below 4.29%. The relatively soft tone in longer-dated yields reflects both the ceasefire-driven risk-off sentiment and expectations that near-term inflation data may influence the Federal Reserve’s policy trajectory.
Eurozone
The euro demonstrated modest resilience following the ceasefire announcement, briefly trading above the $1.1720 level during North American hours yesterday. This represented a continuation of the rally initiated during the Asia Pacific session. However, subsequent profit-taking pressured the single currency back toward $1.1645, which fell below the European session low. The euro recovered to settle near $1.1665, and has since consolidated within approximately a 15-tick band around yesterday’s closing level. Current trading activity reflects consolidation rather than directional conviction, suggesting market participants are awaiting additional catalysts or data confirmation before committing fresh capital.
Germany reported February trade and industrial output data earlier today, providing a mixed picture of economic momentum. The trade surplus narrowed to €19.8 billion from €20.3 billion in January, though it compared favorably to the €17.7 billion recorded in February 2024. Exports expanded by 3.6% month-over-month, reversing January’s 1.5% decline, while imports rose 4.7% compared to a 5.1% contraction previously. Industrial production declined 0.3% in February, disappointing the Bloomberg consensus median forecast of a 0.7% increase. The downside was partially offset by an upward revision to January’s figure from minus 0.5% to flat. These readings underscore the fragility of the eurozone manufacturing sector, even before accounting for potential disruptions from the new energy shock. European benchmark 10-year yields have risen 4-7 basis points, reflecting the broader global repricing of risk assets and the modest normalization of bond markets following yesterday’s sharp decline.
United Kingdom
Sterling demonstrated significant strength yesterday, beginning the week below $1.3180 and rallying to nearly $1.3480 at its peak—the strongest level in a month. This represented an advance of slightly more than three cents from the week’s opening. Most notably, cable briefly penetrated the upper Bollinger Band, currently calculated near $1.3465, for the first time since late January. This technical breakout suggested momentum building among sterling bulls. However, profit-taking emerged during North American afternoon hours, with the pound retreating to around $1.3380 before settling near $1.3395. Today’s trading has consolidated within a $1.3380 to $1.3415 range, reflecting consolidation following yesterday’s sharp advance. The technical backdrop remains constructive, though the inability to sustain levels above the upper Bollinger Band suggests some caution among traders regarding the sustainability of the rally.
Japan
The dollar weakened by approximately 0.55% against the yen yesterday, trading below the JPY158 level for the first time in two weeks. This intraday low represented a meaningful move lower, though the greenback recovered during the North American session to settle around JPY158.55, marginally above the European session high. Today’s activity has been subdued, with USD/JPY straddling the JPY159 area during late European morning turnover. Options totaling approximately $670 million at the JPY159 strike expire today, potentially influencing price action around this level as gamma effects become more pronounced ahead of expiration.
The ceasefire announcement triggered risk-on sentiment that typically pressures the yen, though the currency’s safe-haven status and Japan’s relative economic stability have limited the downside move. The technical breakdown below JPY158 represents a meaningful shift in momentum, but the subsequent recovery and consolidation suggest traders are cautious about extrapolating yesterday’s weakness into a sustained trend. Japanese bond yields edged up 1.5 basis points, reflecting the global repricing of risk assets. Upcoming economic data and any commentary from Bank of Japan officials regarding intervention risk or monetary policy intentions will be closely monitored, particularly given the yen’s sensitivity to geopolitical developments and the potential for rapid reversals in currency flows.
Canada
The Canadian dollar has demonstrated resilience following yesterday’s ceasefire-driven weakness. The US dollar recorded its session low against the loonie near CAD1.3825 during Asia Pacific trading, but recovered to CAD1.3875 during the European morning. North American activity proved choppy yet ultimately consolidative, with the greenback trading quietly between approximately CAD1.3840 and CAD1.3860 today. Options expiring today total around $360 million at the CAD1.3890 strike, potentially anchoring price action around this level. Technical support has emerged in the CAD1.3800 area, with a decisive break potentially opening the door to CAD1.3750. The relatively stable tone in USD/CAD reflects both the commodity-linked nature of the Canadian currency and the modest impact of the ceasefire on oil price expectations, with crude remaining elevated.
Australia
The Australian dollar surged to $0.7085 in the initial reaction to ceasefire news, subsequently consolidating above the $0.7030 level for the remainder of yesterday’s session. The aussie hovered around the $0.7050 area throughout most of North American trading before settling into a tighter range. Today’s activity has kept the currency above $0.7020 but below $0.7050, where options totaling slightly more than A$1.35 billion expire. The Australian dollar has advanced 2.3% over a three-day period, reflecting both the risk-on sentiment from ceasefire hopes and the commodity-linked nature of the currency. The technical resistance at $0.7050 will be critical to monitor; a break above this level could accelerate the rally, while failure to sustain above this zone may trigger profit-taking. Australian benchmark 10-year yields have risen 5-7 basis points, broadly in line with the global repricing of risk assets following yesterday’s sharp decline.
Emerging Markets
The Mexican peso delivered exceptional performance yesterday, rallying 1.5% as the greenback sold off to MXN17.36, the lowest level since March 3. The currency settled around MXN17.44 and has traded quietly today with minimal change around MXN17.44-45 during late European morning turnover, holding below the MXN17.50 level. This represents a substantial appreciation from the pre-war settlement near MXN17.2270. Mexico reports March Consumer Price Index data today, with expectations for further acceleration above the upper end of the central bank’s 2-4% target range. The headline rate is forecast to rise to 4.65% from 4.02%, while core inflation may continue hovering near 4.50%. Despite inflation remaining above target, the central bank not only cut rates last month but signaled the potential for additional reductions, reflecting official concern regarding growth dynamics. The meeting minutes from March’s policy decision may provide valuable insight into the monetary authority’s thinking. Mexico will also release March vehicle production and export figures, though these data points typically generate limited market impact. However, the export figures merit attention given that Mexico exports approximately 80% of its total output, a proportion roughly four times that of China’s vehicle exports.
The Mexican peso outperformed the Colombian peso yesterday, though the greenback remains weaker against the Colombian currency now than before the war began. The Brazilian real has similarly appreciated, with the dollar settling near BRL5.1160 on February 27—its lowest level since May 2024. Yesterday’s session saw the greenback gap sharply lower to BRL5.0655 before closing near BRL5.0970. The offshore yuan reached its best level since February 2023 yesterday, with the dollar testing CNH6.82. Today’s consolidation has confined the currency pair to a narrow range of approximately CNH6.8310 to CNH6.8415. The 2023 low stood slightly below CNH6.70, underscoring the magnitude of the current advance. The People’s Bank of China set the dollar’s reference rate lower for the third consecutive session, with each fixing reaching new lows since April 2023. Today’s fix was established at CNY6.8649, compared to CNY6.8880 last Thursday. The JP Morgan Emerging Market Currency Index remains practically flat, suggesting broad stability across the EM complex despite individual currency strength in selective names.
The Indian rupee rallied sharply, with the dollar rising to INR92.9375 today to fill the gap created by yesterday’s sharp opening decline. For the first time since the Middle East war commenced, the five-day moving average has crossed below the 20-day moving average. Rather than signaling a new downtrend, however, this technical crossing primarily reflects the short squeeze triggered by the Reserve Bank of India’s currency restrictions on Indian banks. This distinction is important for traders evaluating the sustainability of the rupee’s strength.
Global Markets
Equity markets have surrendered a substantial portion of yesterday’s sharp gains. Most Asia Pacific equity markets declined today, with the notable exceptions of Australia and Taiwan, which posted gains. Europe’s Stoxx 600 rallied nearly 3.9% yesterday but has given back approximately 0.65% today. US equity indices advanced 2.5-2.8% yesterday and are currently off approximately 0.25-0.35%, suggesting the initial ceasefire enthusiasm has moderated considerably as market participants reassess the durability of any diplomatic progress.
Benchmark 10-year bond yields have recouped a portion of yesterday’s decline across developed markets. Japanese Government Bond yields edged up 1.5 basis points, while Australian and New Zealand yields rose 5-7 basis points. European benchmark yields are mostly 4-7 basis points higher. The 10-year US Treasury yield remains softer, trading slightly below 4.29%. This mixed picture in global yields reflects both the reversion from yesterday’s sharp decline and ongoing uncertainty regarding the trajectory of monetary policy across major economies.
Precious metals have demonstrated resilience, with gold trading firmly near $4,730 in European trading, though well below yesterday’s high of almost $4,857. Silver has remained relatively stable, hovering around the $74 level with minimal directional conviction. The modest pullback in gold from yesterday’s peak reflects the normalization of risk sentiment, though the precious metal maintains a defensive bid amid ongoing geopolitical uncertainty.
Crude oil has extended yesterday’s rally, with May WTI hitting almost $91 and settling near $94.40 yesterday. Today’s session has seen the contract making new highs near $98.60 in late European morning turnover. The 20-day moving average currently sits around $99.25, suggesting momentum remains elevated despite the modest pullback from yesterday’s highs. The ceasefire announcement has failed to trigger the sharp oil price decline that risk-off sentiment might otherwise suggest, reflecting concerns regarding supply disruptions and the potential for escalation should diplomatic efforts fail. The resilience in crude prices has provided support to commodity-linked currencies, particularly the Canadian dollar and Australian dollar.
