Risk sentiment in the broader risk complex remains slightly positive early Friday as markets react to reports of possible backchannel talks between Iran, the U.S., and Israel aimed at stopping the war. Authorities in the Middle East are also planning a weekend meeting to discuss steps to manage the energy supply crunch. At the same time, mixed economic data and hopes for stronger U.S. employment and retail sales figures are easing the earlier risk-off mood.
The U.S. granted Iran a 30-day sanctions waiver to buy Russian crude oil, which markets see as a sign that the U.S. has limited willingness to push oil prices higher. China is also pressuring Iran to allow ships carrying Chinese energy imports to pass through the Strait of Hormuz. Meanwhile, U.S. President Donald Trump said Iran is showing interest in negotiations, although he added that now is not the right time for talks. The comment still suggests Iran may not want to continue fighting, raising expectations that some form of agreement could emerge within the four-to-five-week timeframe Trump previously mentioned.
However, geopolitical tensions remain the key market driver. Markets reacted to threats that Iran could adopt a scorched-earth policy against the U.S. Reports of bombings in Dubai and Bahrain, along with targeted missile strikes on a Microsoft data center, highlight the regime’s war objectives. Foreign ministers from Arab League member states will hold an emergency meeting on Sunday to discuss Iran’s attacks across the region.
U.S. Central Command (CENTCOM) Commander Admiral Brad Cooper said ballistic missile attacks have fallen by 90% and drone attacks by 83% compared with the start of the operation. At the same time, military activity has intensified, with the U.S. bomber force striking nearly 200 targets inside Iran in the last 72 hours. In the latest wave, U.S. B-2 bombers dropped dozens of 2,000-pound Penetrator bombs targeting deeply buried ballistic missile launchers. Trump also said Iran has contacted the U.S. seeking guidance on negotiating a deal.
On the economic front, U.S. initial jobless claims came in at 213,000, slightly better than the expected 215,000, while continuing claims rose to 1.868 million, above the 1.85 million estimate, suggesting workers are taking longer to find new jobs. U.S. nonfarm productivity increased 2.8% in the fourth quarter (Q4), beating the 1.9% forecast, while unit labor costs also rose 2.8%, above the expected 2.0%, indicating rising wage pressures despite strong productivity. Furthermore, U.S. import prices rose 0.2% in January, matching expectations, while export prices increased 0.6%, above the expected 0.3%, pointing to moderate price pressures in global trade.
Comments from Federal Reserve officials also drew attention. Federal Reserve Bank of Chicago President Austan Goolsbee said institutions are facing a crisis of trust, while Federal Reserve Bank of Richmond President Thomas Barkin noted that recent inflation data raises doubts about whether the Federal Reserve’s fight against inflation is fully finished, even though employment data remains reassuring and overall demand in the economy is still healthy.
In political developments, U.S. President Donald Trump replaced Homeland Security Secretary Kristi Noem following controversy during congressional testimony.
In currency and commodity markets, the U.S. Dollar Index (DXY) eased slightly but remains on track for its biggest weekly gain in four months. Gold rebounded from the $5,100 support level but is heading for its first weekly loss in five weeks, while crude oil has risen for six straight days and is set for a third weekly gain after reaching its highest level since July 2024. Major currency pairs and Antipodean currencies remain under pressure despite a brief corrective bounce. Cryptocurrencies are trimming weekly gains, while equities in the Asia-Pacific region trade slightly lower following Thursday’s weaker Wall Street performance.
EURUSD and GBPUSD face heavy weekly losses, while USDJPY rallies, mainly driven by the U.S. Dollar’s strength amid rising risk aversion. Supporting the USD and pressuring other currencies are mostly upbeat U.S. economic data and fresh doubts about the Federal Reserve (Fed) policy outlook, as geopolitical tensions raise concerns about price stability.
Against this backdrop, EURUSD and GBPUSD remain under pressure both on the day and for the week. In contrast, USDJPY posts mild intraday gains and holds onto its weekly rise, even as hawkish signals from the Bank of Japan (BoJ) emerge and the Japanese Yen (JPY) struggles to benefit from its traditional safe-haven status.
The Australian Dollar (AUD) and New Zealand Dollar (NZD) remain under pressure, ignoring China’s stimulus signals from the National People’s Congress (NPC), as broad risk aversion and a stronger USD weigh on sentiment.
Along the same lines, USDCAD edges higher. However, firmer crude oil prices, Canada’s key export commodity, have recently challenged the pair’s buyers.
U.S. Dollar strength and China’s failure to convince global markets despite optimistic policies announced at the National People’s Congress (NPC) are putting downward pressure on gold and silver prices, which usually rise during periods of economic and political uncertainty like the current environment.
At the same time, a technical pullback and a lack of optimism from India and China, two of the world’s largest gold consumers, are also weighing on precious metals and pushing them toward heavy weekly losses. As a result, gold is heading for its first weekly loss in five weeks, while silver is set for its first weekly loss in three weeks ahead of key U.S. data.
Energy markets are reacting strongly to geopolitical developments. West Texas Intermediate (WTI) crude oil reached its highest level since July 2024, reflecting a strong geopolitical risk premium as traders respond to rising Middle East tensions and potential supply disruptions along key global oil-shipping routes.
Meanwhile, Bitcoin (BTC) and Ethereum (ETH) fell for the second consecutive day but remain positioned for heavy weekly gains following Wednesday’s strong rally, fueled by optimism around the Clarity Act.
In financial markets, major U.S. stock indices closed lower but stayed well above their session lows. A late drop in crude oil prices from $82.16 to around $79.65 helped improve sentiment and support a recovery in equities. In simple terms, rising oil prices increase inflation concerns and pressure stocks, while falling oil prices often trigger a relief rally.
The Dow Jones Industrial Average (Dow) recovered from a decline of 1,162 points to close down 784 points, while the NASDAQ Composite (NASDAQ) rebounded from a loss of 307 points to finish down just 58 points. The Russell 2000 Index (Russell 2000) fell 1.91%, highlighting concerns about domestic economic conditions, as small-cap stocks are more sensitive to growth and credit risks.
The energy sector gained about 0.59%, supported by higher crude prices linked to Iran tensions, with companies such as Superior Energy Services (SPN) among the top performers.
Friday’s economic calendar is packed, starting with European Central Bank (ECB) President Christine Lagarde’s speech, EU employment data, and GDP figures. Later, U.S. nonfarm payrolls (NFP), retail sales, and Federal Reserve (Fed) comments will join Canada’s Ivey Purchasing Managers Index (PMI), making it a busy session. Headlines on Iran will also remain closely watched for market direction.
While strong U.S. data could keep the U.S. Dollar (USD) supported, any disappointment may combine with mixed Iran news to limit the greenback’s weekly gains. This could give major currency pairs, cryptocurrencies, and Antipodean currencies room to recover. At the same time, easing market fears and a weaker USD could push gold, crude oil, and equities higher. However, ongoing market indecision keeps safe-haven assets like precious metals and the USD on the bull’s radar.
May the trading luck be with you!
