Dollar slides as oil drops below $100 on ceasefire

The US dollar weakened to a one-month low as oil prices fell sharply below $100 following a two-week ceasefire agreement with Iran. The British pound strengthened to 1.340 while the euro and yen also advanced. Gold climbed to around $4,819 as investors reassessed risks. Equity markets in Asia rallied and European futures pointed higher, while expectations for a Federal Reserve rate cut later this year gained traction.

Equities

The FTSE 100 closed lower on Tuesday, falling 0.8% to 10,348.8 as caution dominated ahead of the US deadline for Iran to reopen the Strait of Hormuz. The FTSE 250 also declined, slipping 0.4%, with losses broad-based across sectors. The index had earlier reached a one-month high before reversing course and ending a four-day winning streak.

In London trading, Rolls-Royce shares fell 3.9% by the close on Tuesday, weighing on the aerospace and defence sector, which dropped 2.6%. Airline-related stocks also came under pressure as oil prices rose earlier in the session, dragging the travel and leisure sector down 1.9%. Banks declined 0.8%, while pharmaceutical and biotech stocks lost 2.2%.

The oil and gas sector provided some support, rising 0.8% as crude prices remained elevated during the day. BP traded higher in line with stronger oil prices, while British American Tobacco was among the large-cap stocks contributing to the broader decline. Data released on Tuesday showed UK services firms reported the sharpest rise in costs since 2021 in March, adding to inflation concerns.

In the United States, markets ended mixed on Tuesday after a volatile session. The S&P 500 closed up 0.08% at 6,616.85 and the Nasdaq rose 0.10% to 22,017.85, both extending their winning streaks to five sessions. The Dow Jones Industrial Average slipped 0.18% to 46,584.46.

UnitedHealth closed 9.4% higher after the US government confirmed an increase in Medicare Advantage payments. Humana rose 7.9% and CVS Health gained 6.7% on the same announcement. Broadcom added 6.2% after securing a long-term agreement with Alphabet to develop artificial intelligence chips.

Intel climbed 4.2% after confirming its participation in a major AI chip manufacturing project alongside Tesla, SpaceX and xAI. Apple fell 2.1% following reports that development of its foldable iPhone has encountered engineering challenges.

On the economic front, US durable goods orders fell more than expected in February. Chicago Fed President Austan Goolsbee warned that the conflict in Iran could push inflation higher while weakening growth, complicating the Federal Reserve’s policy outlook.

Forex & Commodities

Currency markets moved sharply early on Wednesday following news of a temporary ceasefire between the United States and Iran. The US dollar weakened to a one-month low, with the euro rising to 1.167, the Japanese yen strengthening to 158.4 per dollar, and the British pound climbing to 1.340. The Australian dollar also advanced to 0.7054, while the New Zealand dollar extended gains to 0.5819 after its central bank decision.

The shift in sentiment came after confirmation of a two-week pause in hostilities, which reduced immediate geopolitical risks. However, some caution remains as the agreement is conditional and subject to further negotiations over the coming days.

In commodities, oil prices dropped sharply early on Wednesday as concerns over supply disruption eased. Brent crude traded at 92.95 per barrel, while US crude stood at 94.79, both falling back below the $100 mark after recent spikes linked to tensions around the Strait of Hormuz.

Gold moved in the opposite direction, rising to 4,819 per ounce early this morning. The metal reached its highest level in nearly three weeks as investors reassessed near-term risks following the ceasefire announcement. Despite the recent rise, gold remains below levels seen before the conflict escalated at the end of February.

On the central bank front, the Reserve Bank of New Zealand kept its policy rate unchanged at 2.25%, signalling a wait-and-see approach as it evaluates inflation pressures linked to geopolitical developments. In the United States, market pricing has shifted notably, with traders now considering the possibility of a Federal Reserve rate cut later this year, particularly around the December meeting.