Risk assets remain weak early Wednesday as supply crunch fears intensify despite U.S. President Donald Trump offering insurance and safe passage for vessels through the Strait of Hormuz. The risk-off mood, along with hawkish Federal Open Market Committee (FOMC) commentary, pushed the U.S. Dollar Index (DXY) to a 13-week high and pressured major currency pairs.
Geopolitical tensions between Israel, Iran, and the US drove market volatility. Reports said Iran targeted the US consulate in Dubai, while the United Arab Emirates (UAE) is considering intercepting Iranian missiles. Market anxiety peaked after the temporary closure of the Strait of Hormuz. Sentiment later stabilized when President Trump said the US would provide political risk insurance for maritime trade and that the US Navy would escort tankers as soon as possible.
On Tuesday, oil prices surged, stocks dropped, bond yields rose, and the USD strengthened as the Middle East conflict escalated. Later in the session, Trump’s comments helped crude oil retreat from its highs and supported equities. Major US stock indices still closed lower but well above session lows as buyers stepped in late. In fixed income, US Treasuries traded in both directions and ended mostly flat as safe-haven demand competed with inflation concerns. The 10-year yield closed near 4.06%.
In Asia-Pacific data, China’s official Manufacturing Purchasing Managers’ Index (PMI) printed 49.0 versus 49.1 expected and 49.3 prior. The Non-Manufacturing PMI came at 49.5 versus 49.4 prior, while the Composite PMI eased to 49.5 from 49.8. The unofficial Manufacturing PMI from RatingDog rose to 52.1, versus 50.2 expected and 50.3 prior, and its Services PMI improved to 56.7 from 52.3.
Central bank commentary added to the cautious tone. Several Federal Reserve (Fed) officials acknowledged inflation risks linked to energy prices and the Middle East conflict. Neel Kashkari, Minneapolis Fed President, said the Iran conflict could influence monetary policy if energy-driven inflation proves persistent, though policy is currently in a good place. John Williams, New York Fed President, said long-term inflation expectations remain stable and rate cuts would depend on further inflation easing. He also noted that Artificial Intelligence (AI) may significantly affect productivity and labor demand. Thomas Schmid, Kansas City Fed President and a 2028 voter, opposed further rate cuts for now, favoring restrictive policy until the inflation impact becomes clearer.
The risk-off mood and hawkish FOMC commentary helped the U.S. Dollar Index (DXY) to hit a 13-week high and exert downside pressure on major currency pairs. Notably, EURUSD and GBPUSD both dropped to the lowest level since late November, whereas USDJPY seesaws near a five-week high. Meanwhile, AUDUSD dropped for the third consecutive day despite upbeat Aussie GDP data, while NZDUSD licks its wounds amid mixed NZ data. Furthermore, USDCAD posts mild gains even as crude oil, Canada’s key export item, remains firmer after rising to the highest level since January 2025. That said, Bitcoin (BTC) and Ethereum (ETH) both drop for the second straight day, while equities drift lower, and gold and silver rebound after falling heavily the previous day.
EURUSD fell to its lowest level since late 2025, marking a three-day losing streak early Wednesday, as mixed European Central Bank (ECB) signals and European Union (EU) data combined with a broadly stronger USD. Caution ahead of today’s EU and U.S. data also weighed on the pair despite recently subdued price moves. European Central Bank (ECB) policymaker Martins Kazaks said current interest rates are appropriate under present conditions.
At the same time, intervention talk from Japan and hawkish Bank of Japan (BOJ) signals challenged USDJPY after it climbed to its highest level since January 23. Bank of Japan (BOJ) Governor Kazuo Ueda said wages must rise significantly for Japan to sustainably and stably meet the BOJ price target. He stressed that higher productivity is essential to lift real wages and that monetary policy cannot directly control or target real wage growth. Japan Finance Minister Katayama added that currencies should move in a stable manner reflecting fundamentals and said authorities are closely monitoring markets, with intervention included among possible measures under the US-Japan joint statement.
A softer British Retail Consortium (BRC) Shop Price Index for February, at 1.1% versus 1.2% expected and 1.5% prior, combined with a downbeat United Kingdom (UK) Budget Report, pressured GBPUSD to its lowest level since early December 2025. The Pound was further weighed down by a stronger USD, political tensions in Britain linked to the Labour government, and lingering doubts over the Bank of England’s (BoE) optimistic remarks.
AUDUSD remains under pressure despite strong Australian fourth quarter (Q4) Gross Domestic Product (GDP) growth of 0.8% versus 0.6% expected and 0.4% prior, showing little market reaction. NZDUSD steadied after earlier declines amid mixed New Zealand Q4 data, with terms of trade rising 3.7% quarter-on-quarter (q/q) versus -0.7% expected and -2.1% prior. Meanwhile, USDCAD edged higher as crude oil, Canada’s key export, stayed firm, climbing to its highest level since January 2025.
WTI crude oil rose to its highest level since early 2025, maintaining a multi-month high after gaining more than 5.0% on each of the past two days. Rising prices were driven by fears of Iranian attacks on U.S. offices in the Middle East and negative headlines surrounding the Strait of Hormuz, alongside a recent decline in U.S. weekly inventories. Traders largely ignored OPEC+ output increases and a firmer USD.
Gold faced heavy selling, plunging 4.45%, its worst day since February 2, breaking below $5,100 per ounce to $5,095 and briefly touching $4,996.36 before rebounding. Silver fell 8.17%, down $7.26 to $81.98.
The main driver of these moves was escalating conflict between Israel, Iran, and the US. Reports later indicated Iran targeted the US consulate in Dubai, with the United Arab Emirates (UAE) considering military action to intercept Iranian missiles. Market anxiety peaked following the temporary closure of the Strait of Hormuz but eased slightly after President Trump announced the US would provide political risk insurance for maritime trade and that the US Navy would escort tankers through the Strait as soon as possible.
Bitcoin (BTC) and Ethereum (ETH) fell for a second day amid broad risk aversion and a stronger USD. Major US stock indices also closed lower, recovering from early session lows after late buying eased fears over the Iranian conflict and oil price spikes.
The S&P 500 ended down 64.99 points (-0.94%) at 6,816.63, the NASDAQ fell 232.17 points (-1.02%), and the Dow Jones Industrial Average dropped 403.51 points (-0.83%). Early sharp losses were trimmed by late-day buying, but all indices still finished the day lower.
Apart from ongoing war fears, a busy economic calendar is set to drive trading on Wednesday. Swiss inflation, Eurozone PPI, and final S&P Global PMIs for February from the EU and the U.S. will precede U.S. ADP Employment Change and ISM Services PMI, keeping markets engaged. However, the main focus will remain on Iran developments and central bank statements for clear direction.
A stronger USD may follow upbeat U.S. data, especially with hawkish FOMC signals, putting pressure on major currencies. Gold and crude oil are less likely to see a pullback, while risk assets like equities and cryptocurrencies could weaken further, and bond yields may rise amid risk aversion. GBPUSD is likely to test multi-day lows if the USD stays firm and sentiment worsens.
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