Markets have moved mainly on Iran-related news, with oil and bond yields reacting to ceasefire developments. Recent trading was volatile as approaching geopolitical deadlines first raised inflation and oil supply fears, then eased as hopes of de-escalation pushed oil prices and short-dated yields lower.
Momentum increased after President Donald Trump agreed to a two-week Iran ceasefire, conditional on the Strait reopening. Brent fell below USD100/bbl, S&P 500 futures rose, and the US dollar weakened.
De Escalation Outlook
If de-escalation is seen as credible, the US dollar is expected to return to a shallow depreciation trend as lower energy risks support non-US economies, global risk assets, and cyclical currencies. Since the Iran conflict began, foreign exchange moves have been linked to terms-of-trade shifts and wider risk sentiment.
In a de-escalation scenario, lower oil prices and risk-on conditions are expected to favour AUD, NZD and SEK over oil-linked CAD and NOK, and over safe havens CHF and JPY. Emerging market carry trades such as BRL, MXN and ZAR may return if a truce holds.
The article was made using an artificial intelligence tool and reviewed by an editor.
We are seeing markets trade almost entirely on headlines related to Iran, with oil prices and bond yields reacting to every development. We saw Brent crude spike above $110 late last year during the peak of tensions, but it has since fallen back below $98 a barrel this month. This volatility continues to be the primary driver of short-term positioning.
Market Reaction And Positioning
Looking back at the end of 2025, the major shift in momentum came when a two-week ceasefire was announced, conditional on the reopening of the Strait of Hormuz. This single event caused a significant repricing of risk across assets. The immediate market reaction saw S&P 500 futures rally and the US Dollar weaken against most major currencies.
If this de-escalation holds, the US Dollar should resume a gradual downward trend. Lower energy prices reduce inflation fears and provide a boost to energy-importing economies in Europe and Asia. The CBOE Volatility Index (VIX), a key measure of market fear, has already fallen from its highs above 25 to a more stable reading around 17, supporting this view.
This environment favors currencies like the Australian dollar, New Zealand dollar, and Swedish krona. We have already seen the AUD/USD pair recover from lows near 0.6200 to over 0.6650, and further upside is likely. Derivative traders should consider call options or bull call spreads to gain exposure to these cyclical currencies.
Conversely, oil-linked currencies like the Canadian dollar and Norwegian krone may lag as crude prices stabilize at lower levels. The traditional safe havens, the Swiss franc and Japanese yen, will also likely underperform if risk appetite continues to improve. We have watched the USD/JPY cross climb back toward 152 from its crisis lows near 145 as traders move out of safety.
With volatility easing, emerging market carry trades are becoming attractive again. Currencies like the Brazilian real, Mexican peso, and South African rand offer high yields that look appealing in a calmer global environment. Selling options to collect premium on these pairs could be a viable strategy if the truce remains in place.
