Global markets eye Iran ceasefire as dollar weakens

Investing.com -- Global financial markets are closely watching developments in the Iran ceasefire as its initial two-week deadline expires, with analysts suggesting that currency trends and investor sentiment hinge on whether tensions ease or escalate.

A new report from UBS highlighted that since the ceasefire began on April 7, falling oil prices and stabilizing equity markets have driven a broad weakening of the US dollar across major currencies. Volatility in foreign exchange markets has also dropped to multi-month lows, reflecting investor optimism that the truce may be extended or transition into a longer-term agreement.

With oil prices well below recent peaks and equity indices near highs, investors appear positioned for continued stability. UBS noted that such an environment favors “carry trades,” where investors borrow in low-yield currencies like the Japanese yen to invest in higher-yield assets.

If diplomatic talks between the US and Iran progress, analysts expect further dollar weakness and stronger performance from risk-sensitive currencies such as the Australian dollar.

Despite the optimism, UBS has warned of a “tail risk” scenario in which conflict resumes or intensifies. A major escalation—such as deployment of US ground forces—could trigger a sharp return to risk aversion, boosting the dollar and increasing currency volatility.

With current volatility levels relatively low, the report suggests that hedging against such downside risks is comparatively inexpensive.

Seperately, UBS remained bearish on the yen, citing expectations that the Bank of Japan will delay rate hikes amid global uncertainty. It also said that mixed employment data leaves the outlook for Bank of England policy unclear, though economists expect a rate cut later in 2026, which could weigh on the pound.

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