Written by Hopes and confusion about US-Iran talks
Markets breathed a huge sigh of relief on Monday after President Trump gave his strongest indication yet that he’s seeking to wind down the war with Iran, triggering a relief rally. Trump yesterday posted on Truth Social that he has ordered the US military to delay the attacks on Iran’s power plants and energy infrastructure for five days to allow for “constructive conversations”.
But there’s been great confusion around Trump’s claims as Iran denied that any talks between the two countries had taken place and neither has it signalled any readiness to make a deal. There’s also the question of whether Israel would sign up to any ceasefire agreement even if Washington is keen to find an exit plan.
However, it is clear that the two sides have been engaged in some sort of indirect dialogue, with the help of mediators from Turkey, Egypt and Pakistan. All hopes now rest on the negotiations being taken to the next level in the coming days when US special envoys Steve Witkoff and Jared Kushner and Vice President JD Vance are rumoured to travel to Pakistan’s capital Islamabad to meet with Iranian officials.
Oil off lows as tensions still high in Middle East
In the meantime, Iran continues to strike various targets in Israel and Gulf states, with Saudi Arabia and the United Arab Emirates on the verge of joining the war against Iran according to the Wall Street Journal (WSJ). Saudi Arabia has reportedly already taken the first such step by giving the US permission to use one of its airbases.
Thus, whilst there’s a meaningful prospect of de-escalation, the risk of further escalation remains quite high, keeping many traders on the cautious side.
Doubts about a quick end to the conflict are helping oil prices to rebound from yesterday’s lows when they slumped by more than 10%. Brent crude, which dipped below $100 a barrel, is up almost 2% today, while WTI has bounced back by over 3% to $91.
‘TACO trade’ is back
In the equity sphere, shares on Wall Street staged a sharp rally on the initial news, a move that was reminiscent of the ‘TACO trade’ seen during 2025 on Trump’s tariff U-turns. However, the major indices struggled to hold onto all of their gains, with the S&P 500 pulling back from a high of 6,651 to close just 1.15% higher.
After a positive start on Tuesday, US futures have turned lower during the European session, as investors try to make sense of the flurry of headlines. With some reports suggesting that Iran’s new Supreme Leader has given the talks with Washington the green light, Reuters is reporting that Israeli officials see little chance of Tehran agreeing to US demands.
Until there is more substantial evidence of progress towards peace, oil prices have likely fallen as much as they can for now, meaning that rate hikes remain firmly on the table for most major central banks, while the Fed looks set to stay on hold for the foreseeable future. This means that any risk rally probably won’t be able to get far.
Dollar edges up again as March PMIs show war strain
Further chipping away at risk appetite are today’s gloomy flash PMI readings for March. Although manufacturing activity across Europe and the UK appears to have had a solid month despite surging input costs, the services sector has taken a hit from the Middle East conflict, growing more slowly than expected in both regions.
The euro has slipped back below $1.16 after yesterday’s advance, and the pound is currently testing the $1.34 level. The US PMIs will be in focus next at 13:45 GMT.
The yen is also off its highs following a bigger-than-expected drop in Japan’s core CPI rate in February. Bank of Japan Governor Ueda today reiterated that “Underlying inflation is expected to accelerate gradually”, but in the near term, the yen is being primarily driven by dollar moves.
Gold briefly tumbles below $4,100
Against a basket of currencies, the dollar is on the front foot today, recouping some of Monday’s losses. On the whole, the dollar has been gradually drifting lower from 10-month peaks scaled earlier in the month.
This, though, hasn’t been of much benefit to gold, which yesterday plummeted below $4,100 for a brush with its 200-day moving average. The precious metal is somewhat steadier today, trading around $4,430.
By XM.com
