A state of cautious calm prevailed in the currency markets on Thursday, as traders closely monitored the resilience of the ceasefire between the United States and Iran, just one day after its announcement triggered a broad decline in the dollar.

Persistent Tensions Keep Markets on Edge

The truce appeared fragile as Israel continued its parallel war against the Iranian-allied Hezbollah militia in Lebanon. Meanwhile, Tehran accused both Israel and the United States of violating the agreement, stating that moving forward with peace talks would be "unreasonable."

- The Strait of Hormuz remained closed to unauthorized vessels.

- Shipping companies reported they are awaiting further clarity before resuming transit, which pushed oil prices higher.

- President Donald Trump stated that all U.S. ships, aircraft, and military forces will remain in their positions within and around Iran until Tehran fully complies with the agreement.

This ambiguity kept currency markets in a state of tension and anticipation.

Major Currency Movements

- The Euro stabilized at $1.1661. It had risen by 0.6% on Wednesday before retreating later in the session after hitting a one-month high of $1.1721 earlier in trading.

- The British Pound saw a similar trend, stabilizing at $1.3393 after a 0.77% rise on Wednesday, retreating from its session high of $1.348.

- The Japanese Yen was slightly weaker, with the dollar rising 0.2% to 158.9 yen, after briefly dipping below the 158 yen level on Wednesday.

Derek Halpenny, Head of Research for Global Markets EMEA at MUFG Bank, noted that as long as the Strait of Hormuz remains closed, the "entire ceasefire agreement remains fragile." He added that while the dollar partially recovered, market movements remain limited. He further explained that the scheduled talks in Pakistan helped limit a total reversal of Wednesday's market moves.

Economic Data in the Background

While some global economic data was released, it remained secondary to war-related news. 

- A government survey showed that consumer confidence in Japan declined in March for the first time in three months.

- This fuels concerns regarding the impact of the Middle East war on the economy, potentially complicating the Bank of Japan's decision on interest rate hikes.

- Bank of Japan Governor Kazuo Ueda told Parliament that real interest rates remain clearly negative, keeping financial conditions in the country accommodative.

The United States is expected to release Personal Spending data and the Personal Consumption Expenditures (PCE) index for February later on Thursday. However, since this data covers the pre-war period, it is unlikely to have a significant impact on the markets.

Relative Stability in Other Currencies

- The Swiss Franc remained stable at 0.7913 francs per dollar and 0.9228 per euro.

- The Australian Dollar declined by 0.3% to reach $0.7024.

Gold prices fell in European trading on Thursday for the first time in three days, pulling back from a three-week high due to profit-taking and a rebound in the US dollar. This reversal comes as investor anxiety grows over the durability of the fragile two-week ceasefire between the United States and Iran.

With global oil prices rising again, the probability of the Federal Reserve maintaining or even raising interest rates this year has regained some traction. Investors are now looking toward upcoming crucial US economic data to reassess the future path of monetary policy.

Price overview

* Gold prices today: the price of gold fell by 0.45% to ($4,698.88), from an opening level of ($4,719.27), while recording a high of ($4,698.88).

* At Wednesday’s close, gold had risen by 0.35%, marking its second consecutive daily gain and reaching a three-week high of $4,857.56 per ounce, supported by the dollar's decline following the announcement of the two-week truce.

US dollar

The dollar index rose by approximately 0.2% on Thursday, beginning its recovery from a four-week low of 98.53 points. This rebound across a basket of global currencies exerts downward pressure on gold, as a stronger dollar makes bullion more expensive for holders of other currencies.

Markets are cautiously weighing the resilience of the ceasefire that began Wednesday. Tensions have remained high following violent Israeli military strikes in Lebanon, which resulted in 254 deaths and drew sharp condemnation from Tehran, casting a shadow of uncertainty over the diplomatic process.

Sho Suzuki, market analyst at Matsui Securities, noted: "Doubts may have begun to surface regarding the sustainability of the ceasefire, or even the fundamental possibility of reaching a final agreement."

Iran war updates

* U.S. Vice President JD Vance described the ceasefire as a "fragile truce," noting that Trump is "eager to make progress."

* The Speaker of the Iranian Parliament claimed the United States has already violated the ceasefire agreement.

* The truce has failed to stop fighting between Israel and Hezbollah; Washington maintains that Lebanon is outside the scope of the agreement, while Tehran insists it is a core provision.

* Iran stated that peace talks would be "illogical" following the strikes in Lebanon, yet both sides are still preparing for talks in Pakistan.

Global oil prices

Global oil prices rose by more than 1% on Thursday, recovering from multi-week lows. Renewed fears that the Strait of Hormuz could be closed again to tankers have reignited concerns over global supply stability.

US interest rates

* According to the CME FedWatch Tool: the probability of keeping interest rates unchanged in April is at 98%, while the probability of a 25-basis-point hike stands at 2%.

* While the pause in active conflict led some traders to price in rate cuts later this year, this outlook is being challenged by the rebound in energy prices and geopolitical instability.

* Investors await crucial US data on economic growth and headline inflation, scheduled for release on Thursday and Friday, to refine these expectations.

Expectations for gold performance

Edward Meir, analyst at Marex, stated: "The ceasefire helps calm markets and ease pressures, potentially paving the way for Fed rate cuts, which is positive for gold." However, he warned that the situation remains "extremely fragile" and that the current market recovery could be short-lived if negotiations collapse.

SPDR fund

Gold holdings at the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell by 1.43 metric tons on Wednesday, bringing the total to 1,052.99 metric tons and retreating from its highest level since February 20.

The euro fell in European trading on Thursday against a basket of global currencies, giving up its five-week high against the US dollar due to correction and profit-taking operations, as the American currency recovered from low levels amid growing investor concerns regarding the fragility of the ceasefire agreement between the United States and Iran.

With eurozone inflation exceeding the European Central Bank’s medium-term target due to rising energy prices, the probabilities of raising European interest rates at least once this year increased, pending the release of more crucial economic data in Europe.

Price overview

* Euro exchange rate today: the euro fell against the dollar by 0.1% to ($1.1650), from the opening price of the day at ($1.1662), and recorded the highest level at ($1.1665).

* The euro ended Wednesday’s trading up by 0.6% against the dollar, in the third consecutive daily gain, and recorded a five-week high at $1.1722, after the United States and Iran agreed on a two-week ceasefire, which includes opening the Strait of Hormuz to global navigation.

US dollar

The dollar index rose on Thursday by about 0.2%, to begin recovering from a four-week low at 98.53 points, reflecting a recovery in the levels of the American currency against a basket of global currencies.

Investors cautiously and anxiously assessed the resilience of the fragile ceasefire, which began yesterday, Wednesday, and lasts for two weeks between the United States and Iran, in light of escalating regional tensions, especially after Israel launched violent military attacks on Lebanon, which angered Iranian authorities and increased uncertainty in the markets.

Sho Suzuki, market analyst at Matsui Securities, said: Some doubts may have begun to appear about the sustainability of the ceasefire expectations, or even the possibility of concluding a final ceasefire at all.

Iran war updates

* U.S. Vice President JD Vance describes the ceasefire with Iran as a "fragile truce" and says that Trump is "eager to make progress."

* The Speaker of the Iranian Parliament states that the United States violated the ceasefire agreement.

* The ceasefire agreement fails to stop the fighting between Israel and Hezbollah, and Israeli strikes result in the death of 254 people in Lebanon.

* Iran says that peace talks will be "illogical" in the wake of the Israeli strikes on Lebanon.

* Washington confirms that the situation in Lebanon is outside the framework of the ceasefire agreement, while Tehran insists that it is one of the fundamental clauses.

* The United States and Iran prepare for talks in Pakistan amid disputes between the two countries over the terms of the nuclear program.

European interest rates

* Lagarde, President of the European Central Bank, said: the bank is ready to raise interest rates even if the expected rise in inflation is short-term.

* Data released recently showed that inflation in the eurozone exceeded the European Central Bank's target to reach 2.5% in March with the rise in energy prices.

* Following that data, the money market pricing of the probabilities of the European Central Bank raising European interest rates by about 25 basis points in this April rose from 30% to 35%.

* Sources reported to Reuters that the European Central Bank is likely to begin discussing raising interest rates during the meeting of this month.

* In order to re-price the above probabilities, investors await the release of more economic data in the eurozone regarding the levels of inflation, unemployment, and wages.

The Japanese yen fell in Asian trading on Thursday against a basket of major and minor currencies, giving up its three-week high against the US dollar due to correction and profit-taking operations, as the American currency recovered from low levels amid growing investor concerns regarding the fragility of the ceasefire agreement between the United States and Iran.

In light of the current division over the probabilities of the Bank of Japan raising interest rates when it meets later this year, the latest forecasts indicate that in the event of the collapse of the ceasefire in the Middle East, Japanese interest rates will remain unchanged for the third consecutive meeting.

Price overview

* Japanese yen exchange rate today: the dollar rose against the yen by 0.25% to (¥158.95), from the opening price of the day at (¥158.54), and recorded the lowest level at (¥158.45).

* The yen ended Wednesday’s trading up by 0.65% against the dollar, in the second consecutive daily gain, and recorded a three-week high at 157.89 yen, after the United States and Iran agreed on a two-week ceasefire, which includes opening the Strait of Hormuz to global navigation.

US dollar

The dollar index rose on Thursday by about 0.2%, to begin recovering from a four-week low at 98.53 points, reflecting a recovery in the levels of the American currency against a basket of global currencies.

Investors cautiously and anxiously assessed the resilience of the fragile ceasefire, which began yesterday, Wednesday, and lasts for two weeks between the United States and Iran, in light of escalating regional tensions, especially after Israel launched violent military attacks on Lebanon, which angered Iranian authorities and increased uncertainty in the markets.

Sho Suzuki, market analyst at Matsui Securities, said: Some doubts may have begun to appear about the sustainability of the ceasefire expectations, or even the possibility of concluding a final ceasefire at all.

Iran war updates

* U.S. Vice President JD Vance describes the ceasefire with Iran as a "fragile truce" and says that Trump is "eager to make progress."

* The Speaker of the Iranian Parliament states that the United States violated the ceasefire agreement.

* The ceasefire agreement fails to stop the fighting between Israel and Hezbollah, and Israeli strikes result in the death of 254 people in Lebanon.

* Iran says that peace talks will be "illogical" in the wake of the Israeli strikes on Lebanon.

* Washington confirms that the situation in Lebanon is outside the framework of the ceasefire agreement, while Tehran insists that it is one of the fundamental clauses.

* The United States and Iran prepare for talks in Pakistan amid disputes between the two countries over the terms of the nuclear program.

Japanese interest rates

* The pricing of the probabilities of the Japanese central bank raising interest rates by a quarter of a percentage point in the April meeting is stable around 10%.

* In order to re-price those probabilities, investors await the release of more data about the levels of inflation, unemployment, and wages in Japan.

Expectations about the performance of the Japanese yen

Sho Suzuki, market analyst at Matsui Securities, said: With the continued situation in the Middle East, there seems to be a trend toward expansionary fiscal policy again. This in turn contributes to the weakness of the yen.

Suzuki added: In the event of the collapse of the ceasefire, expectations for a interest rate hike in April may begin to fade, which may in turn lead to the weakness of the yen.

Suzuki explained: Raising the interest rate depends heavily on the situation in Iran, so it is likely that the Bank of Japan will wait until the last moment before the meeting to assess the developments of the situation.