Market Overview
A two-week ceasefire announcement in the Middle East has triggered a pronounced risk-on sentiment across global financial markets, with investors rotating decisively into equities, commodities, and higher-yielding currencies. The US dollar has weakened across all major Group of Ten and emerging market currency pairs, while precious metals, equity indices, and select risk assets have surged on the improved geopolitical backdrop. This shift has overshadowed recent central bank decisions and economic data releases, creating a dynamic environment where North American market participants may face significant opening gaps and heightened volatility when they resume trading.
United States
The greenback has retreated across the board in response to the ceasefire announcement, as investors reassess the risk premium that had been embedded in safe-haven flows. The Federal Reserve’s policy path remains a critical focal point for dollar direction. The central bank held its policy rate steady at the most recent meeting, as widely anticipated, with the median dot in the updated Summary of Economic Forecasts maintaining expectations for one rate cut during the year. Notably, there was only a single dissent from Governor Miran, which was fewer than many market participants had anticipated. Chair Powell’s commentary was interpreted by the market as hawkish in tone, reinforcing a cautious stance on near-term easing.
The Fed funds futures strip currently reflects market expectations that the central bank will likely remain on the sidelines throughout the year, keeping the policy rate unchanged absent significant economic deterioration. This hawkish positioning has provided underlying support to the dollar on a tactical basis, though the broader ceasefire-driven risk-on mood has overwhelmed that support in recent sessions. The detailed meeting minutes, to be published today, will provide additional color on the committee’s economic assessment and inflation concerns that may influence subsequent market positioning.
On the data front, traders are monitoring the JOLTS report for labor market dynamics and will be preparing for the nonfarm payroll figures in the coming sessions. The ADP employment report and ISM manufacturing data remain on the calendar as key indicators of economic momentum. The 10-year US Treasury yield has declined five basis points to approximately 4.24%, reflecting the broad rally in risk assets and the flight from safe-haven positioning. Benchmark yields across the curve have compressed as the geopolitical risk premium has diminished.
Eurozone
The euro has benefited substantially from the ceasefire announcement and the associated shift toward risk-on sentiment. The single currency climbed to $1.1605 in North American trading yesterday, marking a three-day high. When the ceasefire was formally announced, the euro surged through $1.1690 in thin overnight trading conditions, subsequently reaching a fresh high near $1.1710 during late Asia Pacific turnover. This advance proved particularly significant from a technical perspective, as the euro pushed decisively above its 200-day moving average, located near $1.1675, for the first time since March 2. The move also corresponded with the 38.2% retracement level of the losses accumulated since the January high near $1.2080, positioned around $1.1665. The next meaningful retracement target resides near $1.1745, which could attract additional buyers if momentum continues.
Eurozone economic data has presented a mixed picture prior to the geopolitical catalyst. February producer prices declined 0.7% on a monthly basis, with the year-over-year rate falling to minus 3.0% from minus 2.0%, representing the most pronounced deflation since October 2024. The year-over-year rate had last turned positive in July 2025, suggesting persistent disinflationary pressures in the production pipeline. Consumer demand has already been softening independent of the geopolitical shock, with February retail sales slipping 0.2% after a 0.1% decline in January—marking the first back-to-back contraction since October-November 2024.
German factory orders, which had collapsed 11.1% in January, posted a modest 0.9% recovery in February, falling well short of the Bloomberg median forecast for a 3.0% gain. This suggests continued fragility in the industrial sector. Construction PMI data showed the sector rising to 48 in March from 43.7 in February, though the Q4 2025 average of 46.1 and the 2025 full-year average of 44.6 remain deeply depressed compared to the 2024 average of 38.8. The ECB’s policy trajectory will be influenced by these data points, though the near-term market reaction has been dominated by the geopolitical relief rally rather than fundamental economic assessments.
United Kingdom
Sterling has participated enthusiastically in the risk-on rotation, climbing to a three-day high and briefly piercing above $1.3300. The ceasefire announcement triggered a sharp surge to nearly $1.3410, with gains extending further to $1.3445, which represents a move above the 200-day moving average positioned near $1.3415. The $1.3430 area corresponds to the 38.2% retracement target of the decline since the multiyear high recovered in late January near $1.3870. Should momentum persist, the next retracement level is positioned near $1.3515, which could serve as a target for longer-term positioning.
UK economic activity has remained subdued, particularly in the construction sector. The construction PMI rose to 45.6 in March from 44.5 in February, though this remains deeply in contraction territory below the 50 threshold, which has not been breached since the end of 2024. The Q4 2025 average of 41.2 and the full-year 2025 average of 43.3 paint a picture of persistent sectoral weakness compared to the 2024 average of 54.8. The Bank of England’s policy outlook will continue to be shaped by these underlying economic headwinds, though the immediate market reaction has been driven by the external geopolitical catalyst rather than domestic fundamentals.
China
The offshore yuan has posted its strongest performance since the onset of the Middle East conflict, with the dollar retreating sharply against the Chinese currency. The greenback peaked last week around CNH6.9270 but has since fallen to approximately CNH6.8535. The ceasefire announcement triggered a powerful selloff in dollar-yuan, with the greenback declining to the low recorded in late February near CNH6.8265, and subsequently being driven to CNH6.8215, a new three-year low. This represents a decisive break lower from the recent trading range and signals strong demand for Chinese assets amid the global risk-on environment.
The People’s Bank of China set the dollar’s reference rate at CNY6.8680, marking a new low since April 2023 (compared to CNY6.8854 yesterday and CNY6.9025 last Wednesday). This gradual weakening of the official fixing suggests the PBOC is allowing the currency to strengthen in response to capital flows and market dynamics, though the central bank has not intervened aggressively. The yuan’s strength reflects both the broad dollar weakness and renewed investor interest in Chinese assets as risk sentiment improves. PMI data and other economic indicators from China will remain important for assessing the sustainability of this move, as the ceasefire-driven relief rally may prove temporary if underlying economic momentum does not support continued strength.
Japan
The Japanese yen has benefited from the ceasefire-driven dollar weakness, though the move has been more measured than in other currency pairs. The dollar edged higher against the yen yesterday and briefly traded above JPY160 for the first time in six sessions. Options totaling $1.1 billion are set to expire at this level today, which could influence intraday volatility and price action. When the ceasefire was announced, the dollar was aggressively sold to JPY158.55 and subsequently declined below last week’s low near JPY158.30 to approach JPY158, where options for $600 million expire today. A convincing break below this level could trigger additional selling pressure toward JPY157.35.
The Bank of Japan’s policy stance has become increasingly uncertain in light of recent economic data. Labor earnings adjusted for inflation rose 1.9% year-over-year in February, though this figure was slightly marred by a downward revision to 0.1% in January from an initially reported 1.3%. While the BOJ has emphasized the importance of wage growth as a precursor to sustained inflation, the relationship between nominal wage increases and actual consumer spending remains tenuous. Japan reported that February household spending fell 1.8% year-over-year, following declines of 0.5% in February 2025 and February 2024, indicating that higher wages are not automatically translating into stronger consumption.
This deterioration in real spending has prompted the swaps market to downgrade the probability of a rate hike at the BOJ’s late-month meeting to approximately 55% from nearly 75% a week ago, reflecting growing uncertainty about the timing and pace of monetary policy normalization. On a positive note, Japan reported an improvement in its February current account, which reached approximately JPY3.93 trillion compared to JPY31 billion in January, reflecting strong seasonal patterns. The trade balance swung back into surplus at approximately JPY268 billion versus a deficit of JPY600 billion in January. However, it is important to note that the trade surplus in February 2025 was JPY730 billion, and the yen’s undervaluation has not automatically translated into sustained trade surpluses on a balance-of-payments basis. Indeed, Japan has recorded an annual trade deficit for the last four consecutive years, suggesting that currency weakness alone is insufficient to restore external balance without supporting improvements in export competitiveness and domestic demand.
The 10-year Japanese Government Bond yield has eased four basis points to 2.35% as global yields have compressed in response to the risk-on sentiment and reduced safe-haven demand. Intervention risk remains a consideration for USD/JPY traders, particularly if the yen appreciates too rapidly or if the Bank of Japan signals a shift toward more aggressive tightening, though the recent data on household spending may argue against such a shift in the near term.
Canada
The Canadian dollar has strengthened sharply against the US dollar in response to the ceasefire announcement and the associated risk-on rotation. The greenback reached three-day lows against the loonie late in North American trading yesterday, declining to CAD1.3885. The ceasefire announcement triggered an immediate selloff in USD/CAD, with the pair declining to around CAD1.3835 before ultimately bottoming near CAD1.3825 and subsequently recovering to CAD1.3870 in European turnover. The CAD1.3800 area represents a critical technical level, as it houses both the 20-day and 200-day moving averages as well as the 38.2% retracement of the rally since the March 9 low near CAD1.3525.
Canadian economic data and Bank of Canada policy developments will be important drivers of the loonie’s direction in the coming sessions. The central bank’s stance on rate cuts and the trajectory of Canadian GDP growth will influence whether the current strength in the currency can be sustained. Traders should monitor upcoming data releases for signals about the health of the Canadian economy and the BOC’s willingness to ease policy further.
Australia
The Australian dollar has posted impressive gains in the risk-on environment, rallying to almost $0.6975 yesterday, its highest level since March 24. The ceasefire announcement sent the aussie sharply higher, reaching $0.7085 and surpassing the 61.8% retracement of the losses incurred since the March 11 high near $0.7185. The $0.7100-0.7125 area may represent the next meaningful technical hurdle for the currency. The aussie pulled back to around $0.7035 in European morning trading but appears poised to recover during North American hours as risk sentiment remains constructive.
The Reserve Bank of Australia’s recent meeting minutes and ongoing assessment of inflation dynamics will be critical for determining the sustainability of the currency’s strength. The RBA’s willingness to maintain an accommodative stance or shift toward tightening will influence capital flows and investor positioning in the Australian dollar. Private credit growth and other domestic economic indicators will also warrant close attention from traders positioning for medium-term AUD/USD direction.
Emerging Markets
Emerging market currencies have broadly strengthened against the dollar as the risk-on environment has driven capital flows back into higher-yielding assets. The Mexican peso has posted particularly impressive gains, with the dollar declining to approximately MXN17.6835 yesterday, its lowest level since March 19. The ceasefire announcement triggered a sharp selloff in USD/MXN, with the greenback tumbling to about MXN17.4930 in the immediate response to the risk-on mood. The dollar continued to grind lower in subsequent sessions, recording lows near MXN17.4420 in European turnover. The next technical area of note is positioned around MXN17.40, which could attract additional sellers if momentum continues.
The Indian rupee has strengthened for the fourth consecutive session, matching the longest winning streak since last June. The dollar gapped lower at the open, with today’s high reaching approximately INR92.6915 compared to yesterday’s low of approximately INR92.8650. The dollar has now settled below the 20-day moving average near INR92.9270 for the first time since the Middle East conflict began, suggesting a meaningful shift in sentiment toward the Indian currency. The Reserve Bank of India kept its repo rate steady at 5.25%, as widely anticipated, having reduced rates by 125 basis points over the prior year. RBI Governor Malhotra stated that the recently announced currency market curbs are temporary in nature. The swaps market is pricing in 50 basis points of hikes over the next six months, which some analysts believe may be somewhat exaggerated given the current economic environment.
Global Markets
Equity markets have rallied enthusiastically in response to the ceasefire announcement and the associated improvement in global risk sentiment. The large bourses in the Asia Pacific region surged 3-6%, with Europe’s Stoxx 600 advancing 3.7% in late morning turnover. US index futures are trading 2.5%-3.5% higher, suggesting that North American equity markets will open sharply to the upside when trading resumes. This broad-based rally reflects a significant reduction in geopolitical risk premium and renewed appetite for growth-oriented assets.
Benchmark 10-year sovereign yields have declined sharply across the globe as investors rotate out of safe-haven positioning and into risk assets. European rates are mostly 13-25 basis points lower, with premiums over German Bunds narrowing as the region’s bond markets participate in the broader yield compression. The 10-year US Treasury yield has declined five basis points to approximately 4.24%, while the 10-year Japanese Government Bond yield has eased four basis points to 2.35%. This compression in yields reflects both the reduced demand for safe-haven assets and expectations that central banks may have more room to maintain accommodative policies without reigniting inflation concerns.
Precious metals have rallied alongside risk assets, with gold reaching nearly $4,857, its best level in approximately two and a half weeks, and currently trading near $4,785 in late European morning turnover. Silver has also surged to $77.65, also marking a two-and-a-half-week high, and is currently trading near $76.80. The simultaneous rally in both gold and equities reflects the market’s assessment that the geopolitical risk premium has diminished and that growth prospects have improved, allowing investors to reduce defensive positioning.
Crude oil prices have experienced the most dramatic reversal, with May WTI settling near $112.95 yesterday before plummeting to almost $91, representing a decline of more than 15% from pre-ceasefire levels. Although prices have stabilized somewhat from the lows, WTI remains well below the 20-day moving average near $99 for the first time since the Middle East conflict began. June Brent crude has declined approximately 13% from recent levels, reflecting a similar reassessment of geopolitical risk and supply disruption concerns. The sharp pullback in crude prices reflects the market’s view that the ceasefire significantly reduces the probability of further supply disruptions in the region and that the risk premium embedded in energy prices can be unwound.
