Middle East De-escalation Fuels Global Risk Rally, Oil and Dollar Retreat

Crude oil faced sharp selling pressure on news the Strait of Hormuz will reopen shortly. Brent crude tumbled 4% on the open to $83.80 per barrel, a steep drop from its one-month peak of $126.41. WTI crude lost 4.3% to $81.23 per barrel, drawing closer to the $67 level seen before the outbreak of hostilities.

The breakthrough has calmed investor nerves heading into a busy week of central bank meetings. Lower energy prices and the reopening of a key maritime route are expected to reduce the urgency for policy tightening, a move largely prompted by energy-driven inflation pressures.

Attention is also firmly fixed on Fed Chair Kevin Warsh, who chairs his first policy meeting. With Fed policymakers growing more hawkish on inflation risks, investors will parse the policy statement, economic projections and press conference for any shift away from accommodative policy.

Analyst Views on the US-Iran Agreement

Market strategists have shared their assessments following the deal to reopen the Strait of Hormuz and lift US restrictions on Iran.

Jason Wong, Senior Market Strategist at BNZ, Wellington: “This outcome was widely anticipated, so market moves should remain well contained. What we are seeing now signals the likely end of hostilities. It is a positive development, and markets can now shift focus back to fundamental macroeconomic factors. The Middle East tension is no longer a dominant overhang.”

Kristina Clifton, Senior Currency Strategist at CBA, Sydney: “The reopening of the Strait of Hormuz is undoubtedly good news for the global economy. Even so, we expect a full recovery in oil and gas supply to take time. We will track the resumption of shipping activity and the pace of output recovery.”

Clifton added energy prices are unlikely to return to pre-conflict levels over the near term, while full normalisation of maritime activity will also be gradual.

Sean Callow, Senior FX Analyst at ITC Markets: “The lack of detailed terms, particularly regarding freedom of navigation, remains a concern. However, the current surge in risk appetite will overshadow these issues for today’s trading.”

“The prospect of declining energy prices has reset the tone for a series of upcoming central bank decisions,” Callow noted.