The risk environment remains mildly positive early Wednesday as market focus shifts from the Iran war to upcoming central bank decisions. Traders expect that easing inflation pressures and recently strong economic data could encourage a hawkish tone from the Bank of Canada (BoC) and the Federal Reserve (Fed) at the Federal Open Market Committee (FOMC). This shift signals declining risk aversion, weighing on the U.S. Dollar and crude oil prices, while gold also extends losses as expectations for further rate cuts from major central banks fade.
At the same time, geopolitical tensions continue, with the killing of another senior Iranian official raising concerns about energy supply disruptions. U.S. President Donald Trump indicated that the U.S. may act independently if global partners fail to stop Iran from blocking the Strait of Hormuz. Market sentiment is further supported by China approving NVIDIA H200 artificial intelligence chips, alongside encouraging economic updates from Japan and Australia.
Meanwhile, Iraq and the Kurdistan Regional Government agreed to resume oil exports through Ceyhan, and India is coordinating with Iran to ensure safe energy shipments via the Strait of Hormuz.
Japan’s export growth slowed due to weaker automobile shipments to the U.S. and softer Chinese demand during the Lunar New Year period. At the same time, Japan and the U.S. are preparing to announce more than ¥11 trillion in additional investment commitments as part of ongoing economic cooperation. In currency markets, major foreign exchange pairs traded within tight ranges ahead of the FOMC decision, while attention also turns to the Bank of Japan (BoJ) policy announcement, with both central banks widely expected to keep interest rates unchanged.
In the technology sector, several Chinese firms were approved to purchase NVIDIA H200 artificial intelligence chips, pointing to a modest easing in global semiconductor trade restrictions. Meanwhile, Donald Trump signaled that most allies are unlikely to assist in the Hormuz situation but emphasized that the U.S. can manage independently. He suggested the conflict may last a few more weeks and criticized the North Atlantic Treaty Organization (NATO) for its absence.
A notable development came as National Counterterrorism Center (NCTC) Director Joe Kent resigned over the Iran conflict, signaling emerging internal opposition. Market behavior also showed a shift, with both equities and oil rising simultaneously for the first time since the conflict began, indicating differing views between near-term supply concerns and longer-term expectations. Despite uncertainty around U.S. strategy, markets believe the administration remains aligned with its initial four-to-five-week timeline, while also considering easing Venezuela oil sanctions to support global supply. A private survey further indicated a significantly larger-than-expected build in crude inventories.
U.S. economic data showed February pending home sales increased by 1.8% against expectations of a decline, while the Automatic Data Processing (ADP) Employment Change reported a rise of 9,000 jobs compared to 14,750 previously.
In broader market movements, the U.S. Dollar Index (DXY) declined for a third consecutive session, and crude oil fell to a one-week low, while gold extended its downward trend. Major currency pairs remained subdued, although AUDUSD and NZDUSD held onto recent gains. USDCAD rose for a second straight session despite a weaker U.S. Dollar, supported by softer oil prices and expectations that the FOMC may adopt a more hawkish stance than the BoC. Cryptocurrencies showed no clear direction after ending an eight-day rally, while Asia-Pacific equities moved higher, tracking consecutive gains on Wall Street despite ongoing geopolitical uncertainty.
The U.S. Dollar stays weak for a third straight day, allowing the Euro (EUR), British Pound (GBP), and Japanese Yen (JPY) to extend gains for three consecutive sessions despite the lack of strong risk-positive news or major economic catalysts from Europe, the United Kingdom (UK), and Japan. As a result, EURUSD and GBPUSD rise for a third day, while USDJPY remains under pressure after falling over the previous two sessions.
In Europe, the March ZEW Economic Sentiment Index for both the Eurozone and Germany disappointed expectations, highlighting a weaker outlook. In the UK, there are no major updates as markets await the Bank of England (BoE) monetary policy decision scheduled for Thursday.
In Japan, export data beat forecasts but showed slowing momentum. At the same time, business sentiment improved significantly, with the Reuters Tankan survey indicating manufacturer confidence rose to +18 in March from +13 in February, marking the highest level since December 2021. Furthermore, major Japanese companies are expected to deliver a fourth consecutive year of solid wage growth following the “shunto” labor negotiations, driven by ongoing labor shortages and the need to retain workers despite increasing global economic uncertainty.
AUDUSD and NZDUSD record modest gains, supported by slightly positive market sentiment and continued weakness in the U.S. Dollar. AUDUSD advances despite softer domestic sentiment data, as it remains supported by optimism following the Reserve Bank of Australia (RBA) delivering its first interest rate hike in more than two years. Additionally, positive risk sentiment is reinforced by news of China approving NVIDIA deals, which further supports both currency pairs. Australia’s economic outlook is beginning to soften, with the Westpac–Melbourne Institute Leading Index holding at +0.08% in February on a six-month annualized basis. This indicates growth remains slightly above trend but is gradually losing momentum due to evolving financial conditions.
While other major currencies and the Antipodean currencies (AUD and NZD) gain on a weaker U.S. Dollar, USDCAD rises for a second consecutive day, surprising markets ahead of the key policy decisions from the Bank of Canada (BoC) and the Federal Reserve (Fed) at the Federal Open Market Committee (FOMC). The upward move in the Loonie pair (USDCAD) is supported by declining crude oil prices, which are Canada’s main export, and expectations that the BoC may adopt a less hawkish stance compared to the Fed, especially after weaker Canadian employment and inflation data released earlier.
West Texas Intermediate (WTI) crude oil falls to a weekly low, while gold remains under pressure after a four-day losing streak as markets position ahead of key central bank events. The lack of any major escalation in tensions between the U.S. and Iran also contributes to the softer tone in these commodities.
Following the killing of security chief Ali Larijani, Iran carried out strikes on Israel and U.S.-linked assets. Despite this, oil prices moved lower as markets did not see clear signs of further escalation. Price action was also influenced by mixed U.S. private inventory data, which showed a larger-than-expected build in crude oil stockpiles alongside a bigger-than-expected decline in gasoline inventories, with official data scheduled for release later in the U.S. session.
Bitcoin (BTC) and Ethereum (ETH) remain subdued early Wednesday after ending an eight-day rally, as traders await major central bank decisions. Meanwhile, Asia-Pacific equities post modest gains, following the second consecutive positive session on Wall Street.
In the U.S., stocks closed higher, signaling cautious optimism. The Russell 2000 Index led with a 0.67% gain, reflecting increased appetite for riskier assets, while the NASDAQ Composite rose 0.47%, supported by continued interest in artificial intelligence-driven technology stocks. The Standard & Poor’s 500 (S&P 500) gained 0.25%, and the Dow Jones Industrial Average (DJIA) added 0.10%. The overall market trend is steady rather than sharp, showing improving sentiment and selective rotation toward growth and smaller-cap stocks, even as traders remain mindful of macroeconomic and geopolitical uncertainties.
Looking ahead, once the Federal Reserve (Fed) delivers its decision, market focus is expected to shift more fully to the economic impact of the Iran conflict. While the Fed’s tone may remain hawkish, emphasizing inflation risks—especially from energy—there is growing concern over potential downside effects on employment and household incomes.
Traders will also watch key economic releases, including Eurozone inflation, U.S. Producer Price Index (PPI), and U.S. Factory Orders, ahead of the Bank of Canada (BoC) and Fed monetary policy announcements. Weekly U.S. oil inventory data and developments around Iran and the Strait of Hormuz will remain important for market sentiment.
With both the BoC and Fed widely expected to keep rates unchanged and no extreme economic surprises anticipated, the U.S. Dollar (USD) could rebound if Fed Chair Powell maintains an optimistic tone and the FOMC Summary of Economic Projections shows a positive U.S. outlook. A stronger USD, alongside stable BoC guidance and weaker crude oil prices, could lift USDCAD while putting pressure on other major currencies, cryptocurrencies, and equities. Meanwhile, gold faces the risk of testing support near $4,800 if the USD strengthens.
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