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The day after President Trump warned of potential annihilation—but ultimately stepped back and introduced a two-week cease-fire—markets responded with a strong wave of relief. Risk sentiment improved quickly, with stocks surging, oil prices falling sharply, yields moving lower, and the USD weakening as traders dialed back expectations for an immediate escalation in geopolitical risk.
However, the path toward a durable cease-fire remains anything but straightforward. The US has laid out a 15-point framework, Iran is working from its own 10-point plan, and Israel continues to pursue a far more aggressive strategy, including ongoing strikes against Hezbollah in Lebanon—actions that fall outside the scope of what others may consider acceptable terms for peace. With each party operating from a different playbook, coordination and execution remain the key challenges, keeping uncertainty elevated beneath the surface.
What initially appeared to be meaningful progress—most notably the reopening of the Strait of Hormuz—proved fleeting. A limited number of ships were able to pass through early on, but the window quickly closed as tensions reignited. Israeli strikes in Lebanon and retaliatory missile activity toward Israel disrupted the fragile calm, leading to another shutdown of the vital shipping route. That reversal highlights just how sensitive the situation remains to headline risk and military developments.
The key difference—for now—is that while tensions are still elevated and fluid, the immediate threat of a large-scale, full-blown escalation has eased. That shift has helped stabilize market sentiment and fuel the relief rally, even as the underlying risks remain unresolved and capable of resurfacing quickly. In addition hope springs eternal with US VP Vance will leading a delegation to Pakistan for increased talks for a lasting solution.
By the close, the impact across markets was clear. In the US, equities posted strong gains with the Dow up 2.85%, the S&P 500 rising 2.51%, and the Nasdaq advancing 2.80%. European markets performed even better, with outsized gains led by the German DAX (+5.06%) and France’s CAC (+4.49%), both marking their largest increases since 2022, while other indices saw their strongest gains since April 2025. The UK’s FTSE 100 rose 2.51%, Spain’s Ibex gained 3.94%, and Italy’s FTSE MIB climbed 3.70%.
In the US debt market, yields moved lower, with the 10-year yield falling as much as 10 basis points at its lows and currently down 4.2 basis points at 4.301%, while the 2-year yield is down 4.3 basis points at 3.786%. Meanwhile, oil prices plunged as supply fears eased, with the May crude contract falling 14.69% to $96.30, and the June contract dropping 10.29% to $89.16.
In short, markets are pricing in a pause—not a resolution. The relief is real, but so is the fragility of the backdrop.
The USD weakened broadly as markets reacted to the de-escalation tone following the proposed cease-fire, with traders rotating out of safe-haven positions and into risk. The dollar fell against higher-beta and European currencies, declining -0.82% on the USD index. The dollar fell by -0.58% to 1.1661 vs the EUR, and -0.79% vs the GBP.
Commodity-linked currencies also benefited vs the greenback, with the NZD up 1.61% and the AUD rising 0.97%, supported by the sharp drop in oil and improved risk sentiment. The USDCAD slipped 0.32% as well. The dollar fell against traditional safe havens, with USDJPY -0.65% to 158.58 and USDCHF -0.83% to 0.7911, reflecting a rotation out of defensive flows.
A day of hope but with Iran seemingly not content, Israel definitely that satisfied, and the US caught in the war, it seems like the best hope is a de-escalation, but if the Strait of Hormuz remained closed, we the are back at the very beginning.
This article was written by Greg Michalowski at investinglive.com.