Global financial markets started the week under heavy pressure after a major escalation in the U.S.–Israel and Iran conflict. Joint strikes inside Iran and reports of the killing of Iran’s Supreme Leader, Ayatollah Ali Khamenei, severely hurt market sentiment. Risk aversion quickly took over. Investors rushed toward safe-haven assets like gold and silver, while the U.S. Dollar strengthened.
Crude oil became the main focus, jumping more than 5.0% to its highest level since June 2025, even though the Organization of the Petroleum Exporting Countries and allies (OPEC+) had already announced a supply increase. Tensions intensified further as Iran’s Revolutionary Guards tightened control over the Strait of Hormuz, a key route that transports nearly 20% of global energy supplies, raising fresh concerns about global trade disruption.
The conflict moved into its second day with strong political signals. Reuters reported that Iranian state media confirmed the death of Ayatollah Ali Khamenei after U.S. and Israeli strikes. U.S. President Donald J. Trump declared on Truth Social that Khamenei was dead and said “heavy and pinpoint bombing” would continue as long as necessary. In a public statement, Trump said hundreds of targets were hit, including Revolutionary Guard facilities, air defense systems, nine ships, and a naval building. He confirmed that combat operations were ongoing and would continue until objectives were achieved. He warned of possible U.S. casualties, described Iran’s long-range missile and nuclear capability as a direct threat, pledged to avenge American deaths, urged Iranian military forces to surrender in exchange for immunity, and encouraged Iranian citizens to reclaim their country with U.S. support. He also signaled that sanctions could be lifted if a new Iranian regime emerges.
Debate over strategy quickly followed. Former National Security Advisor John Bolton, speaking to Politico, called the strikes the most consequential decision of Trump’s presidency but expressed concern that the administration may not have coordinated sufficiently with Iranian opposition groups. The New York Times also noted that Trump presented mixed and sometimes inconsistent views about how the leadership transition in Iran could unfold.
In fixed income, bond yields first declined on safe-haven demand but later rose 2–3 basis points (bps) across the curve, suggesting rising concern about energy-driven inflation. Early price reversals were largely attributed to profit-taking, as markets had partially priced in geopolitical risk beforehand. The next major variable remains Iran’s response.
Talking about the U.S. data, inflation data from the U.S. added to investor caution. January Producer Price Index (PPI) final demand rose 2.9% year-over-year (Y/Y), above the 2.6% expectation, compared to a previous 3.0%. On a month-over-month (M/M) basis, PPI increased 0.5% versus the 0.3% forecast, with the prior figure revised to 0.4%. This marked the second consecutive upside surprise, reinforcing concerns that inflation remains sticky, particularly due to ongoing cost-push pressures. Meanwhile, December construction spending rose 0.3%, matching expectations but below the prior 0.5%. The Atlanta Federal Reserve (Fed) Gross Domestic Product Now (GDPNow) model slightly lowered its first-quarter (Q1) growth estimate to 3.0% from 3.1%, indicating continued economic resilience rather than weakness.
In Europe, Germany’s February preliminary Consumer Price Index (CPI) increased 1.9% Y/Y, below the 2.0% forecast and prior 2.1%. The Harmonized Index of Consumer Prices (HICP) rose 2.0% versus 2.1% expected. Core CPI remained steady at 2.5% Y/Y.
In Japan, Ryozo Himino noted that tariff impacts were less severe than initially feared. Strong U.S. consumer demand and continued Artificial Intelligence (AI) capital expenditure (capex) by hyperscalers have supported global growth, benefiting Japan as well. The output gap is estimated near zero.
In currency markets, the U.S. Dollar Index (DXY) climbed to a five-week high, reversing its earlier weekly losses. The stronger Dollar pressured EURUSD and GBPUSD, while supporting USDJPY. Commodity-linked pairs such as AUDUSD and NZDUSD declined. USDCAD remained relatively firm as higher crude oil prices supported Canada’s export outlook. Beyond traditional markets, Bitcoin (BTC) and Ethereum (ETH) recorded unexpected gains. However, Asia-Pacific equity markets traded lower, and U.S. stock futures pointed to additional downside, reflecting the broader cautious environment.
Risk aversion helped the U.S. Dollar start the key data week and the month of March on a strong footing. The stronger Dollar pressured both EURUSD and GBPUSD.
In the Eurozone, comments from European Central Bank (ECB) officials, along with mixed economic data from the bloc, added further downside pressure on EURUSD.
In the United Kingdom (UK), weakness in credit markets combined with the broadly firmer U.S. Dollar weighed heavily on GBPUSD. Credit market stress also surfaced after UK mortgage lender MFS warned of a potential 1.3 billion shortfall in loan collateral due to double-pledged assets. Major lenders such as Barclays, Jefferies, and Apollo’s Atlas were exposed, raising concerns about due diligence and leveraged finance risks.
Meanwhile, USDJPY moved higher despite hawkish signals from the Bank of Japan (BoJ) and market talk about possible Japanese intervention to support the Japanese Yen (JPY). Ignoring these factors, the pair climbed to a three-week high after posting gains for consecutive weeks.
Negative market sentiment and a stronger U.S. Dollar pressured AUDUSD and NZDUSD early Monday, even after both pairs posted solid weekly gains earlier.
However, USDCAD showed no clear trend. Weak sentiment around the Antipodean currencies competed with a strong rally in crude oil prices, which supports the Canadian Dollar because crude oil is Canada’s main export.
At the same time, Canada’s economic data disappointed. Fourth-quarter (Q4) Gross Domestic Product (GDP) contracted by 0.6%, much weaker than the 0.0% forecast and the previous 2.6% growth. On a quarter-on-quarter (q/q) basis, GDP declined by 0.2%, compared to the earlier 0.6% expansion. Despite this quarterly weakness, full-year real GDP still recorded growth of 1.7% in 2025.
West Texas Intermediate (WTI) crude oil surged more than 5.0%, reaching its highest level since June 2025, as fears over energy supply disruptions intensified. The move followed reports that Iran’s Revolutionary Guards had captured the Strait of Hormuz, a critical route responsible for nearly 20% of global energy shipments, raising serious concerns about supply security.
At the same time, supply-side developments received little market attention. The Organization of the Petroleum Exporting Countries and allies (OPEC+) agreed to increase production by 206,000 barrels per day (bpd). This was higher than earlier expectations of no change and above the previously leaked figure of 137,000 bpd. The increase, likely influenced by rising geopolitical tensions, will begin in April. Saudi Arabia had already signaled its willingness to boost output if supply disruptions occur. The OPEC+ members participating in the agreement are Saudi Arabia, Russia, United Arab Emirates (UAE), Kazakhstan, Kuwait, Algeria, Iraq, and Oman.
As investors move toward traditional safe-haven assets during periods of uncertainty, such as the current tensions involving Iran, gold and silver extended their earlier gains. At the same time, cryptocurrencies turned positive after Sunday’s decline, as traders expect supportive progress related to the CLARITY Act.
In contrast, Asia-Pacific equity markets traded lower, following the weak close on Wall Street on Friday and reacting to the weekend’s geopolitical developments.
Equity markets had already been under pressure before the latest escalation. During Friday’s North American session, sentiment clearly shifted to risk-off mode. Stronger-than-expected inflation data and emerging stress in financial markets weighed on stocks. The S&P 500 fell 0.87% after gaining 1.37% in January. The NASDAQ declined 3.38%, recording its worst monthly performance since March 2025. Meanwhile, the Dow Jones Industrial Average rose slightly by 0.17%.
The 3.3% monthly drop in the NASDAQ reflected continued pressure on growth and valuation-sensitive sectors. In comparison, the Dow showed relative strength as investors rotated toward defensive stocks. Market participants are now less confident about near-term Federal Reserve rate cuts, particularly as inflation remains persistent, and concerns continue about the sustainability of Artificial Intelligence (AI)-driven growth.
After the major weekend developments, the reaction of Western traders will be crucial for market direction.
On Monday, Germany’s Retail Sales and the final February Purchasing Managers Index (PMI) readings from S&P Global for the European Union (EU), the United Kingdom (UK), and the U.S. will set the early tone. Later, the U.S. Institute for Supply Management (ISM) Manufacturing PMI will draw attention. Even so, the main focus remains on the Iran war and how global powers respond.
Because of the U.S. Dollar’s safe-haven status and rising global risk aversion, including fears of a possible World War 3, strong U.S. economic data could further support the Greenback, especially with ongoing hawkish concerns surrounding the Federal Reserve (Fed). This may put pressure on major currencies and Antipodean currencies. Meanwhile, crude oil and gold are likely to stay attractive to bullish traders.
However, technical indicators suggest that markets could see a short-term pullback before any fresh rally. Buyers should remain cautious, particularly if risk-positive developments emerge, such as signs of Iran’s surrender. Cryptocurrencies may also struggle to extend gains, especially with continued uncertainty around the CLARITY Act.
For the week ahead, key U.S. data includes Nonfarm Payrolls (NFP), Retail Sales, and the Institute for Supply Management (ISM) Purchasing Managers Index (PMI). In Europe, investors will watch the Eurozone Flash Harmonized Index of Consumer Prices (HICP) and the European Central Bank (ECB) Minutes. Australia will release Gross Domestic Product (GDP) figures, while the UK will present its Spring Statement.
May the trading luck be with you!
