USD rises as tensions escalate ahead of US-Iran talks

Today’s headlines

What’s happening: The US dollar edged higher this morning but remained on course to ending the week in the red.

What happened: Although a two-week US-Iran ceasefire agreement exerted pressure on the US dollar, tensions mounted as Lebanon’s retaliatory missiles struck Israel.

Investors grew more cautious after Abu Dhabi National Oil Company’s CEO said that the Strait of Hormuz remained effectively closed.

Why it matters: On April 8, the US and Iran agreed to a two-week ceasefire to allow for talks to end the war that began on February 28. Pakistan said that delegations of the US and Iran are scheduled to arrive at its capital city of Islamabad today.

Just hours after the ceasefire announcement, Israel launched a massive offensive against Lebanon, striking several residential and commercial areas in and around Beirut. Hezbollah said that Lebanon had launched several rounds of rocket fire on Thursday, targeting Israel’s financial capital of Tel Aviv and other locations.

Although Iran had agreed to offer military support to ensure safe passage of vessels through the Strait of Hormuz for two weeks, the route remained closed due to these escalating tensions.

While Israel’s Prime Minister Benjamin Netanyahu said Lebanon was not covered under the ceasefire, Trump confirmed a conversation asking Israel to scale back its offensive.

Meanwhile, minutes from the latest Federal Reserve meeting signalled that policymakers are concerned about the ongoing conflict resulting in inflationary pressures, which may require interest rate hikes.

Data released on Thursday showed US wholesale inventories climbed 0.8% to $919.6 billion in February following a 0.3% decline in January. US GDP grew at an annualised rate of 0.5% in the fourth quarter of 2025, coming in below expectations of 0.7%.

The core PCE price index surged 3% from the previous year in February, easing from 3.1% in January, but remaining above the Fed’s 2% target. Initial jobless claims jumped by 16,000 to 219,000 in the week ending April 4.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, rose around 0.1% to 98.87 this morning.

The EUR/USD forex pair fell 0.1% to 1.1694, while the GBP/USD pair slipped to 1.3429.

What to watch: Investors will keep an eye on the talks between the US and Iran as well as tensions between Israel and Lebanon.

Data on inflation rate (1630 UAE Time), Michigan consumer sentiment (1800 UAE Time) and factory orders (1800 UAE Time) will be released today. Analysts expect the annual inflation rate in the US to accelerate to 3.3% in March from 2.4% in the previous month. The University of Michigan’s consumer sentiment index, which dipped to 53.3 in March from 56.6 in February, is expected to decline further to 52 in April. New orders for manufactured goods in the US, which rose by 0.1% to $620.1 billion in January, are expected to decline by 0.2% in February.

The markets today

Japan’s stock markets in focus today following the release of economic data

Context: Japan’s Nikkei 225 gained this morning, with the two-week US-Iran ceasefire lifting investor sentiment.

Details: The two-week ceasefire agreement between the US and Iran provided a boost to global market sentiment, with investors now focussing on diplomatic talks between the two nations over this weekend.

Hopes of the Strait of Hormuz being reopened were hurt by Israeli strikes on Lebanon and a counterstrike by Hezbollah over the past two days. Investors remained concerned about higher rising energy costs weighing on Japan’s economic growth.

Meanwhile, data released this morning showed Japan’s producer prices surged 2.6% year-over-year in March, accelerating from 2.1% in the previous month and coming in higher than market expectations of 2.4%. The latest reading signalled the fastest annual growth in producer prices since November 2025.

Japan’s bank lending jumped 4.8% year-over-year in March, accelerating from 4.5% in the previous month. This marked the strongest rise since April 2021.

Tech stocks were among the top performers, with shares of Kioxia Holdings and Fujikura recording sharp gains this morning. Shares of Fast Retailing also jumped more than 9% after the company raised its operating profit outlook for the full year.

Japan’s Nikkei 225 rose 1.35% to 56,651.02 this morning.

What to watch: Investors will continue monitoring talks to end the US-Iran war and the unrest between Israel and Lebanon.

Data on industrial production and capacity utilisation will be released by Japan on Tuesday. Analysts expect Japan’s industrial production to contract by 2.1% in February following 4.3% growth in the previous month.

Other Markets: US trading indices closed higher on Thursday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.58%, 0.62% and 0.72%, respectively.

The news shaping the markets

Russian President Vladimir Putin agreed to a 32-hour ceasefire in Ukraine for the Orthodox Easter weekend. The news sent the USD/RUB pair lower in forex trading this morning.

Australia’s private house approvals rose by 0.2% to 9,847 units in February, easing from a 1.7% surge in the previous period, which exerted pressure on the AUD/USD forex pair.

China’s producer prices surged 0.5% year-over-year in March. This being higher than market estimates of a 0.4% gain sent the USD/CNY pair higher in forex trading this morning.

New Zealand’s BusinessNZ performance of manufacturing index fell to 53.2 in March from a revised reading of 54.8 in February, exerting pressure on the NZD/USD forex pair.

Colombia’s annual inflation rate climbed to 5.56% in March from 5.29% in the previous month. The latest reading coming in above market estimates of 5.47% sent the USD/COP pair higher in forex trading this morning.

What else to watch today

Italy’s industrial production (1200 UAE Time), India’s bank loan growth (1530 UAE Time), deposit growth (1530 UAE Time), foreign exchange reserves (1530 UAE Time) and M3 money supply (1530 UAE Time), Brazil’s inflation rate (1600 UAE Time) and business confidence (1800 UAE Time), Mexico’s industrial production (1600 UAE Time), Canada’s unemployment rate (1630 UAE Time), employment change (1630 UAE Time) and average hourly wages (1630 UAE Time), Germany’s current account (1645 UAE Time), Russia’s GDP growth rate (2000 UAE Time) and inflation rate (2000 UAE Time), as well as US Baker Hughes oil rig count (2100 UAE Time), Baker Hughes total rigs count (2100 UAE Time) and monthly budget statement (2200 UAE Time).