The markets continue to exhibit a sense of unease. The five-day hiatus announced by President Trump yesterday is being viewed with skepticism. The assertions made appear to align with psychological operations linked to warfare, such as commencing hostilities amidst negotiations. There is a prevailing sentiment that the upcoming five-day timeframe may facilitate the deployment of additional US troops to the region, potentially leading to an effort to seize Kharg Island. The US approach appears to fluctuate between eliminating Iran’s ability to produce even the most basic items and pursuing regime change while maintaining the energy infrastructure to enable the new government to reconstruct. Meanwhile, an increasing number of ships seem to be navigating through the Strait of Hormuz, which is evolving into a toll booth with a passage fee of $2 million to be settled in yuan. Meanwhile, the US has presented Europe with a decisive ultimatum: Reach an agreement on the trade deal by March 26 or forfeit favorable access to US liquified natural gas.

Today, the follow-through in dollar selling has been constrained following yesterday’s decline. The market exhibits a deficiency in near-term confidence. The preliminary March PMIs exhibited a generally weaker performance, serving as an early indication of the disruptive effects stemming from the war. Yesterday’s hopeful optimism has transitioned into a more cautious approach today. In the previous day’s turbulent trading session, the US retreated from the ultimatum presented over the weekend, referencing discussions that Iranian leaders have denied occurred. The euro fluctuated around the pre-weekend range, maintaining a position above the 20-day moving average since the onset of the conflict in Iran, and concluded at its peak level since March 4. The euro has recovered slightly, regaining more than half of the losses experienced this month. Today, there has been a lack of follow-through buying, even with the positive price movement observed. In the current consolidative environment, the euro has established support around $1.1575. Options for 1.1 billion euros at $1.16 reach their expiration today.

The dollar peaked at JPY159.65 prior to President Trump’s retraction of the ultimatum he had set approximately 36 hours earlier, granting Tehran an additional five days. The greenback experienced a decline, trading at approximately JPY158.20. Following the establishment of the low, the dollar primarily consolidated beneath JPY158.80. Yesterday’s low remains intact today, with the greenback approaching JPY158.80 once again. Sterling emerged as the strongest G10 currency against the yen yesterday. The increase was approximately 0.60%. The performance was noted in conjunction with a significant drop in UK rates. The yield on two-year Gilts fell by 15 basis points, almost entirely reversing the increase observed before the weekend. The swaps market currently reflects a discount of approximately 60 basis points for rate hikes this year, a decrease from the 84 basis points observed prior to the weekend. Sterling stabilized around $1.3480 prior to the conflict and approached that level again yesterday. Today’s session is currently trading below yesterday’s settlement. New bids were identified in Europe at approximately $1.3380.

Despite the significant intra-day fluctuations, the Canadian dollar remained relatively stable at the close yesterday. In the midst of position adjustments driven by cautious optimism regarding the potential de-escalation of the conflict in Iran, the greenback experienced a decline, reaching a five-day low of approximately CAD1.3670. The price rebounded to approximately CAD1.3735 before encountering resistance. The asset reached a modest new two-month peak, just surpassing CAD1.3760 today. Current support is identified around the CAD1.3725 level, and an upward movement could challenge the CAD1.3800 level. The Australian dollar fell to nearly $0.6910 yesterday, marking its lowest point since early February. There are concerns regarding the potential escalation of conflict in Iran, particularly as the Australian dollar has shown a rebound. It, too, concluded with minimal variation, remaining above $0.7020. The recent preliminary PMI reading was notably weak, and the stronger US dollar has led to the Australian dollar retreating to approximately $0.6955 today. A total of A$700 million in options priced at $0.6975 are set to expire today.