Markets Cautious as Iran Talks Offset Strong Risk Appetite

The EUR/USD pair edged lower to around 1.1780 during Friday’s early Asian trading session, retreating from recent eight-week highs as improving geopolitical sentiment supported the US Dollar.

Market attention remains focused on upcoming talks between the United States and Iran, scheduled for the weekend. Investors adopted a cautious stance after US President Donald Trump said Washington and Tehran could reach a permanent ceasefire agreement before the current truce expires next week.

Trump also noted that he had spoken with Lebanese President Joseph Aoun and Israeli Prime Minister Benjamin Netanyahu, adding that Israel and Lebanon had agreed to a 10-day ceasefire beginning at 5 p.m. ET on Thursday.

While optimism surrounding diplomatic progress has boosted demand for the Greenback, lingering uncertainty continues to keep volatility risks elevated, limiting broader market confidence.

On the monetary policy front, European Central Bank officials appear inclined to leave interest rates unchanged at the upcoming April meeting. ECB President Christine Lagarde said this week that policymakers must remain “completely agile” on rates, while emphasizing there is no preset bias toward tightening.

Despite that cautious tone, markets continue to price in further policy tightening later this year. According to Reuters, investors see a roughly 20% chance of an ECB rate hike in April, while a move by June is largely priced in. A second quarter-point increase is also expected later in the year.

Gold prices remained range-bound during Friday’s Asian trading session, with gold prices hovering near the $4,800 level as traders weighed conflicting geopolitical and monetary policy signals.

The precious metal stayed under mild pressure as concerns surrounding the Strait of Hormuz and ongoing US naval restrictions on Iranian ports supported demand for the US Dollar. A firmer Dollar typically weighs on Gold by making the metal more expensive for holders of other currencies.

At the same time, hopes for diplomatic progress in the Middle East helped limit downside pressure on bullion. A recently announced 10-day truce between Israel and Lebanon increased optimism over a possible agreement between Washington and Tehran.

US President Donald Trump said on Thursday that Iran was close to reaching a deal. Meanwhile, the Wall Street Journal reported that the United States and Iran had agreed in principle to resume talks, although no date or location has been confirmed.

Gold also found support from softer expectations for further US Federal Reserve tightening. This week’s US Producer Price Index (PPI) data eased concerns that higher energy prices would fuel broader inflation, reducing pressure on the Fed to keep rates elevated.

With no major US economic data scheduled for release on Friday, investor focus is expected to shift toward speeches from Federal Reserve officials and any fresh developments regarding US-Iran negotiations.

Oil prices moved slightly lower in early Friday trading as investors reacted to growing optimism that diplomatic efforts in the Middle East could ease supply disruptions and help bring the Iran conflict closer to an end.

Sentiment improved after a 10-day ceasefire between Lebanon and Israel came into effect, alongside comments from US President Donald Trump indicating that Washington and Tehran could hold talks over the weekend.

Trump said Iran had proposed not to possess nuclear weapons for more than 20 years, describing negotiations as close to producing a deal.

Markets have been closely watching developments in the region after the Strait of Hormuz remained closed for seven weeks, disrupting around one-fifth of global oil supply and driving sharp price volatility.

Oil prices surged roughly 50% in March during the height of the crisis.

According to Reuters sources, US and Iranian negotiators have scaled back expectations for a comprehensive peace agreement and are now focusing on a temporary memorandum aimed at preventing renewed conflict.

Investors will continue to monitor weekend diplomatic developments, with any progress toward reopening key shipping routes likely to weigh further on crude prices.

US equities ended higher on Thursday, with the US 500 and US Tech 100 posting record closing highs for a second consecutive session as investors welcomed signs that geopolitical tensions in the Middle East may be easing.

The gains followed news that Israel had agreed to a temporary ceasefire with Lebanon, while US President Donald Trump said the United States and Iran could resume talks over the weekend.

Despite the positive finish, trading remained volatile throughout the session as markets reacted to shifting headlines. Trump also said Iran had offered not to possess nuclear weapons for more than 20 years, while Bloomberg reported earlier that Gulf and European officials believe a comprehensive deal could still take around six months.

Economic data released Thursday presented a mixed picture. Initial jobless claims fell more than expected last week, indicating continued resilience in the labour market. However, uncertainty tied to the regional conflict has reportedly made employers more cautious about hiring.

Corporate earnings also influenced sentiment as first-quarter reporting season gathered pace. PepsiCo rose 2.3% after beating quarterly profit expectations while Abbott Laboratories fell almost 6% after lowering its full-year earnings outlook.