Brent crude oil prices held largely steady during Tuesday’s trading, as investors await the outcome of anticipated nuclear talks between Iran and the United States, alongside trilateral peace negotiations involving the United States, Ukraine, and Russia, all taking place in Geneva.

Brent crude futures rose by 11 cents, or 0.16%, to $68.76 per barrel by 11:57 GMT, after posting gains of 1.33% in Monday’s session.

US West Texas Intermediate crude reached $63.86 per barrel, up 97 cents or 1.54%. However, this move reflects the full price action from Monday, as the contract did not settle that day due to the US Presidents’ Day holiday.

Asian markets saw limited trading activity, with many exchanges closed on Tuesday for Lunar New Year holidays, including China, Hong Kong, Taiwan, South Korea, and Singapore.

Investors are closely monitoring relations between Washington and Tehran, as any escalation or potential conflict could push Iran to close the Strait of Hormuz — a vital route for global oil exports — which would have a major impact on international energy supplies.

Attention is also focused on Russia–Ukraine peace talks, since any settlement could lead to sanctions relief and the return of Russian oil to major global markets.

Prices tied to diplomatic signals

Sugandha Sachdeva, founder of SS WealthStreet research in New Delhi, said market sentiment is closely linked to the tone and progress of these negotiations, keeping a geopolitical risk premium embedded in prices.

She added that oil prices are likely to remain volatile, with sharp upward and downward moves driven more by diplomatic signals than by supply and demand fundamentals.

Washington and Tehran began indirect talks in Geneva on Tuesday focused on their long-running nuclear dispute, amid a US military buildup in the Middle East. Iran’s supreme leader warned that any US attempt to overthrow his government would fail.

Semi-official Fars News Agency reported that Iran would close parts of the Strait of Hormuz for several hours on Tuesday as a “security precaution” to ensure safe navigation, alongside military exercises conducted by the Revolutionary Guard in the waterway.

Also in Geneva, Ukrainian and Russian officials are scheduled to meet for a new round of US-mediated peace talks, with the Kremlin indicating that discussions will likely focus on territory, the core point of disagreement.

On the ground, Ukrainian attacks on Russian energy infrastructure continue. The Ukrainian military said on Tuesday it targeted the Ilsky refinery, and a drone strike was reported on the port of Taman.

Separately, Russia’s Interfax agency reported that oil production at Kazakhstan’s giant Tengiz field is gradually increasing following an outage that occurred last January.

The Japanese yen rose on Tuesday, reversing the losses recorded in Monday’s session against both the euro and the dollar, supported by expectations that Prime Minister Sanae Takaichi will continue expansionary fiscal policy, providing support to the currency.

Meanwhile, the US dollar posted slight gains against the euro over the past two sessions, as markets await signals later this week about the potential timing of interest rate cuts by the Federal Reserve.

Ahead of Japan’s general election held on February 8, long-term bond yields rose and the yen weakened, reflecting bets that Takaichi would launch additional fiscal stimulus packages after an election victory, which could fuel inflation.

Since the election, the Japanese government bond yield curve has flattened, market-based inflation has stabilized, and the yen has strengthened, as markets price in greater chances of portfolio inflows back into Japanese assets, alongside a gradual shift away from the era of ultra-low real interest rates in Japan.

However, some analysts said the rapid market reaction appears premature, noting that capital repatriation into Japan is unlikely in the near term, and that the Bank of Japan is likely to raise interest rates only at a gradual pace.

The yen rose 0.50% to 152.80 against the dollar, after having fallen 0.55% the previous day. It also gained 0.52% to 180.97 against the euro, after a prior decline of 0.37%.

Capital flows into Japan’s booming equity market are expected to support the currency, but the Nikkei index fell on Tuesday as investors moved to take profits, while post-election optimism began to fade.

Barclays said its model points to the high-140-yen-per-dollar range as fair value, in line with levels seen before Takaichi’s victory in the Liberal Democratic Party leadership race last October, which paved the way for her to become prime minister.

It added that assuming the “Takaichi premium” does not fully fade, the ¥150-per-dollar level is likely to form a near-term target.

The yen had declined on Monday after data showed Japan’s economy recorded only marginal growth in the fourth quarter.

The dollar awaits data and the Fed minutes

Trading volumes were light, with many Asian markets closed for the Lunar New Year holiday, alongside the Presidents’ Day holiday in the United States. Investor focus later this week is on the minutes of the Federal Reserve’s latest meeting and the preliminary reading of US gross domestic product.

Kristina Clifton, senior currency strategist at Commonwealth Bank of Australia in Sydney, said: “We are broadly optimistic about the US economy.”

She added: “Markets are currently pricing a high probability of an interest rate cut in June, which is also our base case. But we differ from the market in not expecting a follow-up cut in July.”

The dollar index — which measures the US currency against a basket of currencies — rose slightly to 97.12 after gaining 0.2% in the previous session, while the euro slipped 0.05% to $1.1843.

Data released on Friday showed US consumer prices rose less than expected in January, giving the Federal Reserve additional room to ease monetary policy this year. Money markets are pricing about 59 basis points of rate cuts for the remainder of the year.

The British pound fell on Tuesday after data showed the UK unemployment rate rose to a five-year high in December, while wage growth slowed, which may strengthen the case for further rate cuts by the Bank of England. It was last down 0.35% at $1.3582.

The Australian dollar also slipped 0.05% against the US dollar to $0.7069.

Minutes from the latest Reserve Bank of Australia meeting showed the board had not reached a firm conclusion on the need for further rate increases, but stressed that inflation has remained above target for three years.

Gold prices fell 2.5% in European trading on Tuesday, deepening losses for the second consecutive session and recording the lowest level in two weeks, due to weaker safe-haven demand amid recent political developments, in addition to a stronger US dollar in the foreign exchange market.

Strong US labor market data reduced the likelihood that the Federal Reserve will cut US interest rates next March, as markets await more evidence about the policy path later this year.

Price Overview

•Gold prices today: Gold declined by 2.7% to $4,859.43, from the session opening level at $4,993.24, and recorded a high of $5,000.83.

•At Monday’s settlement, gold prices lost about 1.0%, marking the second loss in the past three sessions, within corrective and profit-taking moves from a two-week high at $5,119.21 per ounce.

Political Developments

US President Donald Trump said on Monday that he would participate “indirectly” in talks between Iran and the United States regarding Tehran’s nuclear program, scheduled to be held Tuesday in Geneva. Trump added that he believes Tehran wants to reach an agreement.

Representatives of Ukraine and Russia are also meeting in Geneva on Tuesday and Wednesday for a new round of US-sponsored peace talks, which the Kremlin said will likely focus on territorial issues.

US Dollar

The dollar index rose about 0.2% on Tuesday, extending gains for the second straight session and reflecting continued strength of the US currency against a basket of major and minor currencies.

As is known, a stronger US dollar makes dollar-denominated gold bullion less attractive to buyers holding other currencies.

The strong US labor market data released last week reduced the chances of a Federal Reserve rate cut in March.

US Interest Rates

•Chicago Fed President Austan Goolsbee said on Friday that interest rates may decline, but noted that inflation in the services sector remains elevated.

•According to the CME FedWatch tool, pricing for keeping US interest rates unchanged at the March meeting stands at 90%, while pricing for a 25 basis point cut stands at 10%.

•To reprice these probabilities, investors are closely watching additional US economic data releases, along with the minutes of the Federal Reserve’s latest meeting.

Gold Outlook

Market strategist Ilya Spivak said gold prices are unlikely to rise significantly, as geopolitical risks do not appear to be escalating meaningfully.

Spivak added that the Federal Open Market Committee minutes, along with signals about the Federal Reserve’s direction, will be important indicators for gold prices.

SPDR Fund

Gold holdings at SPDR Gold Trust, the largest gold-backed ETF in the world, remained unchanged on Monday, with the total holding steady at 1,077.04 metric tons.

The British pound declined in European trading on Tuesday against a basket of global currencies, continuing to move in negative territory for a second straight day against the US dollar, as traders remain focused on buying the US currency after expectations for a Federal Reserve rate cut in March declined.

The pound is also pressured by strong expectations that the Bank of England will cut interest rates in March. To reprice these expectations, investors are awaiting key UK labor market data due later today.

Price Overview

• British pound exchange rate today: The pound fell against the dollar by 0.2% to $1.3604, from an opening level of $1.3633, and recorded a high of $1.3635.

• The pound lost 0.2% against the dollar on Monday, marking its fourth loss in the past five days, due to speculation around UK interest rates.

US dollar

The dollar index rose by more than 0.1% on Tuesday, extending gains for a second consecutive session, reflecting continued strength in the US currency against a basket of major and minor currencies.

Strong US labor market data released last week reduced the likelihood of a Federal Reserve interest rate cut in March.

According to the CME FedWatch tool: pricing for keeping US interest rates unchanged at the March meeting is currently around 90%, while pricing for a 25 basis point rate cut stands near 10%.

To reprice these expectations, investors are watching this week for the minutes of the Federal Reserve’s latest meeting, in addition to several important US economic releases.

UK interest rates

• Following the Bank of England meeting last week, traders increased their bets on resuming the monetary easing cycle and cutting interest rates.

• Market pricing for a 25 basis point Bank of England rate cut at the March meeting is currently above 60%.

UK labor market

To reprice the above probabilities, investors are awaiting key UK labor market data later today, including January jobless claims, along with the unemployment rate and average wages data for December.

Outlook for the British pound

We expect here at Economies.com: if UK labor market data come in less firm than markets expect, the probability of a Bank of England rate cut in March will rise, which would lead to further downside pressure on the British pound.