Geopolitical Tensions and AI Tech Slump Drive Market Volatility

The Euro remained under pressure against the US Dollar on Wednesday, as the Greenback held firm amid conflicting developments surrounding potential ceasefire negotiations between the United States and Iran. Ongoing uncertainty over Tehran’s stance continues to support demand for the safe-haven USD.

Tensions escalated after Iran signaled resistance to US-backed peace proposals. According to state-affiliated media, Tehran intends to end the conflict strictly on its own terms.

Tehran has outlined firm requirements for any agreement, including a complete cessation of attacks and assassinations, guarantees against renewed conflict, compensation for war-related damages, a halt to fighting across all regional fronts, and recognition of its authority over the Strait of Hormuz.

This follows reports that Washington proposed a 15-point framework aimed at initiating negotiations, including a one-month ceasefire.  The divergence between the two sides suggests that a near-term diplomatic breakthrough remains unlikely, increasing the risk of a prolonged conflict.

Market participants are now pricing in two potential rate hikes from the European Central Bank, while expectations for rate cuts from the Federal Reserve have largely diminished. Investors increasingly anticipate that the Fed may keep rates unchanged through 2026.

Earlier in the session, Christine Lagarde stated that the ECB would refrain from acting until it has sufficient data. She noted that if economic shocks lead to a temporary but notable overshoot of inflation targets, a measured policy response could be appropriate. Lagarde also stressed the importance of monitoring whether rising energy costs risk feeding into broader inflationary pressures.

Gold prices (XAU/USD) came under renewed selling pressure ahead of the European session on Thursday, extending the previous session’s looses. A combination of hawkish central bank expectations and a firm US Dollar (USD) continues to favor bearish sentiment.

The broader macro backdrop remains unsupportive for the precious metal. Despite ceasefire rhetoric from US President Donald Trump, Iran has denied any active negotiations and dismissed the possibility of a deal. Tehran has also rejected a reported 15-point ceasefire proposal from Washington, instead outlining sweeping conditions to de-escalate the growing Middle East conflict.

Geopolitical tensions remain elevated, with reports of additional US troop deployments in the region further increasing the risk of escalation. This backdrop continues to reinforce the US Dollar’s appeal as a global reserve and safe-haven currency, weighing on non-yielding assets such as Gold.

At the same time, disruptions to Iran’s energy infrastructure and the effective closure of the Strait of Hormuz have supported Crude Oil prices, intensifying inflation concerns.

Markets have largely priced out the likelihood of further Fed rate cuts, with traders increasingly positioning for a potential rate hike by year-end. Rising US Treasury yields, driven by these expectations, are providing additional support to the USD and prompting capital outflows from Gold.

Looking ahead, XAU/USD is likely to remain highly sensitive to geopolitical developments. Volatility could stay elevated amid speculation of a possible US ground operation targeting Iran’s key oil export hub at Kharg Island, adding another layer of uncertainty to the market outlook.

Oil prices advanced more than 2% during Asian trading on Thursday, supported by ongoing uncertainty surrounding the Middle East conflict and mixed signals over potential de-escalation efforts involving Iran and the United States.

Market sentiment remains sensitive to developments out of Tehran, where officials are reportedly reviewing a US-backed proposal aimed at ending hostilities. Although Iran has not formally accepted the plan, it has also avoided outright rejection, leaving the door open to a possible дипломатic path forward.

However, Iranian authorities have denied engaging in direct negotiations with Washington and signaled that significant differences remain unresolved. This lack of clarity continues to keep traders cautious.

Oil markets have experienced sharp swings in recent weeks as the conflict disrupted energy flows from the Gulf — a region critical to global crude supply. Particular attention remains on the Strait of Hormuz, a key transit chokepoint responsible for roughly 20% of global oil shipments. Any threat to flows through the passage continues to carry significant implications for global energy markets.

On the supply side, bearish signals emerged from US inventory data. According to the Energy Information Administration, crude stockpiles rose by 6.93 million barrels last week, sharply contrasting with expectations for a 1.3 million-barrel draw.

Overall, the combination of geopolitical uncertainty and mixed fundamental signals continues to drive heightened volatility across oil markets.

The US 500 closed lower on Wednesday, retreating from earlier session highs as geopolitical tensions resurfaced after Iran pushed back against a US-backed ceasefire proposal.

Broader US equity markets also gave up intraday gains, highlighting the fragile sentiment that has dominated trading this week. Investors continue to react to rapidly shifting headlines surrounding the conflict, resulting in sharp swings between risk-on and risk-off positioning.

Initial optimism was driven by US claims that negotiations with Iran were ongoing. However, these were quickly countered by Tehran, with Foreign Minister Abbas Araghchi reportedly stating that no direct talks with Washington are taking place. Iranian officials emphasized that indirect communication via intermediaries does not constitute formal negotiations.

The lack of alignment between Washington and Tehran has kept geopolitical risk elevated, limiting upside momentum in equities. Investor caution has also been reinforced by concerns over the economic impact of a prolonged conflict, particularly through higher energy prices.

On the corporate front, deal activity and earnings provided pockets of support. Merck announced a $6.7 billion acquisition of Terns Pharmaceuticals, while Chewy surged after reporting stronger-than-expected earnings. Meanwhile, space-related stocks gained following reports that SpaceX may soon move forward with a highly anticipated initial public offering.

Overall, the index remains headline-driven, with near-term direction likely to hinge on geopolitical developments and their implications for inflation, interest rates, and global growth.