US-Iran talks emerged: US dollar erases war premium, oil prices plummet, global stocks and gold rise together.

On Wednesday, global financial markets experienced severe volatility due to a major shift in the Middle East situation. Reports suggested that the US and Iran were close to reaching an agreement to end the conflict, triggering a surge in risk appetite, leading to a decline in the US dollar, a slump in oil prices, and a sharp rise in global stock markets. US Dollar Erases "War Premium" On Wednesday, the US dollar continued its recent downward trend, completely erasing all gains since the outbreak of the Middle East conflict. The Bloomberg Dollar Spot Index fell by 0.8% at one point, reaching its lowest level since February 26th. Previously, the US dollar had strengthened due to safe-haven demand and rising energy prices, but as the situation reversed, funds rapidly exited. Daniela Hathorn, senior market analyst at Capital.com, commented that this latest news signified a significant shift in the situation, which the market viewed as a clear positive signal. Investors may further turn towards optimism, gradually digesting the pessimistic expectations that had been factored in earlier due to extreme risk aversion. Reports indicated that the White House believed it was close to reaching a memorandum of understanding with Iran to end the current conflict and set the framework for more detailed negotiations on nuclear issues. As a result of this news, the US dollar weakened against almost all major currencies. Options market indicators showed that investors had lost confidence in the US dollar's potential for a rise in the coming week, with the index measuring demand for bullish and bearish US dollar trades falling to the most negative level since late February. Additionally, commodity currencies like the Canadian dollar and Norwegian krone, which had benefited from high oil prices previously, faced downward pressure. Oil Prices Plunge Nearly 10% in a Single Day The reaction in the commodity markets was more pronounced. International oil prices plummeted on Wednesday, with US crude futures prices falling by almost 12% to around $90 per barrel; global benchmark Brent crude futures prices dropped by approximately 11%, breaking below the $100 per barrel mark. Wholesale gasoline prices declined by 5%, and heating oil futures, an important gauge of aviation fuel, tumbled by over 6.5%. The immediate impact of the oil price pullback was a relief for consumers. Just before the news broke, the average retail gasoline price in the US had surpassed $4.50 per gallon, the highest level since July 2022, and just under 50 cents away from the historical peak. Since the US and Israel launched military actions against Iran, gasoline prices had soared by over 50%. The crucial Strait of Hormuz had almost come to a standstill, with the daily number of transiting vessels dropping to single digits at one point, severely impeding over 20% of global oil supplies. Despite the drop on Wednesday, oil prices had still risen by over 60% since the beginning of the year. Bond Yields Decline and Gold Rebounds Lowering risk sentiment pushed down bond yields. The yield on the US 10-year Treasury note dropped by nearly 9 basis points to 4.34%, and the yield on the 30-year Treasury bond hit around a one-week low. The decline in yields meant that consumer borrowing costs would ease, with the US 30-year fixed mortgage rate, which had climbed to a high of 6.54% due to war worries, expected to retreat over the next one or two days. Meanwhile, traditional safe-haven asset gold rose instead of falling, with spot gold prices climbing over 3% to surpass $4710 per ounce. Analysts noted that the strength in gold prices was mainly due to the weakening US dollar and the easing of inflation and rate hike expectations following the oil price pullback. However, market participants warned that if tensions between the US and Iran were to escalate again, gold prices could face speculative profit-taking. In terms of the stock market, S&P 500 index futures quickly rose by over 1%, Nasdaq 100 index futures surged by 1.67%, Russell 2000 index futures rose by 2%, and Dow futures soared by over 590 points. European markets also rose rapidly, with the STOXX 600 index surging by 2.52%. Focus Shifts to Non-Farm Payrolls Data While the Middle East situation dominated short-term market trends, investors also began to focus on the US non-farm payrolls data set to be released later this week. The data would test the resilience of the US economy and judge whether it was strong enough to support the Federal Reserve's current tightening monetary policy, or whether weakness in the labor market would reignite expectations of rate cuts. Currently, US President Trump had announced a pause in escort operations, stating that negotiations had made "significant progress." Iran also expressed that they would only accept a "fair and comprehensive agreement." The volatile market movements indicated that traders were quickly pricing in the possibility of peace.