A fragile ceasefire between Iran, the United States, and Israel moved into its second day as delegations prepared to meet in Pakistan, even as disputes over the truce’s scope and terms threatened to undermine the agreement.
The ceasefire, announced just over 24 hours earlier after threats against Iranian infrastructure, remains in force but is widely seen as tentative and conditional on progress in negotiations.
Tehran pushes to widen terms of truce
Core disagreements have already emerged.
Tehran is pressing to extend the ceasefire framework to Lebanon, a move that would broaden the theater covered by the truce. Iran is also reported to be seeking effective control over the Strait of Hormuz, including the power to impose transit fees on shipping.
The strait is currently recognized under international law as an international waterway open to global maritime traffic. Any change to that status, or to rights of passage, would likely face strong opposition from major trading nations.
In parallel, reports indicate Iran may push for limited rights to enrich uranium under strict export conditions, a politically sensitive issue that could complicate talks with Washington and its allies.
Oil tumbles, equities rise on reduced risk premium
Financial markets moved quickly to reprice geopolitical risk.
Crude oil dropped roughly 17% following the ceasefire announcement, reflecting expectations of lower immediate supply disruption risk in the Middle East. U.S. equities advanced, with the S&P 500 up about 2.5% and trading well above its 200-day simple moving average, signaling renewed risk appetite.
The cross-asset move points to a rapid compression in the perceived risk premium linked to Middle East tensions, as traders shifted out of defensive positioning. The Cboe Volatility Index (VIX) fell below 14 for the first time in around ten days, underscoring the retreat in demand for downside protection.
Safe havens lose traction as rate fears build
Gold and silver initially rallied on the ceasefire headlines, but both metals later surrendered their gains and settled into a relatively stable session as geopolitical worries faded from their intraday highs.
Spot gold’s inability to hold levels above $2,350 per ounce highlights a market where hawkish monetary expectations are overshadowing the appeal of traditional havens. The brief spike and subsequent reversal suggest that the ceasefire-driven relief was not enough to overcome mounting concerns about higher-for-longer interest rates.
More broadly, commodities traded in a tighter range through the session as traders reassessed both geopolitical and policy risk.
Currency markets respond to shifting risk and rate outlook
In foreign exchange, the New Zealand dollar emerged as the strongest major currency from the Tokyo open, benefiting from the swing toward risk-on positioning.
The Japanese yen weakened further, despite the generally calmer geopolitical backdrop. The USD/JPY pair extended its downward retracement from a sharp bullish breakout seen two weeks ago, though the pace of the pullback has slowed in recent sessions, suggesting waning momentum rather than a clear directional shift.
The combination of softer volatility and lingering expectations for restrictive U.S. policy continues to underpin the U.S. dollar against lower-yielding counterparts, even as specific pairs adjust to technical dynamics.
Fed minutes tilt hawkish as rate-hike odds rise
Monetary policy developments are increasingly acting as the dominant catalyst across asset classes.
Minutes from the latest Federal Open Market Committee meeting revealed that several officials are actively considering raising interest rates rather than cutting them, challenging the prior market narrative of imminent easing.
Derivatives pricing tracked by the CME FedWatch Tool now implies about a 22% probability of a rate hike at the next meeting, a stark reversal from the rate-cut scenario that prevailed as recently as last month. This shift is tightening financial conditions and pressuring assets that depend heavily on abundant liquidity.
For traders in speculative, high-volatility assets, this backdrop points to a choppy environment in which positive geopolitical headlines may offer only brief support before policy concerns reassert themselves.
Data in focus: core PCE and final GDP
Attention is now turning to two key U.S. releases due later today: the core PCE price index and the final reading of GDP.
Core PCE, the Federal Reserve’s preferred inflation gauge, will be watched closely for confirmation of persistent price pressures. A monthly rise of 0.4% or more would likely validate the more aggressive stance signaled by several Committee members and could push market expectations further toward the possibility of a rate increase.
Such an outcome could easily erase the modest boost to sentiment created by the ceasefire, reinforcing the view that monetary policy, rather than geopolitics, is the primary driver of medium-term market direction.
Ceasefire holds but uncertainty remains high
Despite the disputes over its terms, the ceasefire remains in place as delegations head into talks under heavy diplomatic pressure.
Whether the truce can be broadened to include Lebanon, or whether Iran’s demands over the Strait of Hormuz and uranium enrichment gain any traction, will be central to the next phase of negotiations.
For now, markets are balancing a tentative easing of geopolitical risk against a steadily more hawkish policy outlook, a mix that is supporting the U.S. dollar, capping safe-haven metals, and leaving risk assets sensitive to any upside surprise in inflation data.
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