Middle East War updates: US-Iran peace talks fail, Trump threatens to blockade Strait of Hormuz
Here’s all you need to know about the developments in the Middle East war that took place over the weekend, which are expected to have a significant impact on the markets in the upcoming week.
- United States (US) Vice President JD Vance stated on Sunday that the US and Iran have failed to reach an agreement on the peace terms in Islamabad after the negotiations went on for 21 hours.
- "We negotiated for several hours, and we have not yet reached an agreement that is satisfactory for both sides. We need to see an affirmative commitment that they will not seek nuclear weapons and tools which will enable them to achieve nuclear weapons. The President is very clear about this," added Vance.
- Iran’s Parliament Speaker Mohammad Bagher Ghalibaf, who led Iran in the negotiations, said although he and his colleagues had offered “constructive initiatives”, the US had been “unable to gain the trust of the Iranian delegation in this round of negotiations”.
- It was now up to Washington “to decide whether it can gain our trust or not”, Ghalibaf added.
- US President Donald Trump in his post on Truth Social that the US is going to start “BLOCKADING any and all Ships trying to enter, or leave, the Strait of Hormuz”.
- The US Navy is going to start “ destroying the mines the Iranians laid in the straits”, warning that any Iranian who fires at the US or at “peaceful vessels will be blown to hell. No one who pays an illegal toll will have safe passage on the high seas,” he said, adding that the blockade – which will involve so far unspecified other countries – will “begin shortly. Iran will not be allowed to profit off this Illegal Act of EXTORTION. They want money and, more importantly, they want Nuclear,” Trump warned.
- In a Fox News interview later on Sunday, Trump reiterated his threat, noting that “I could take out Iran in one day. I could have their entire energy everything, every one of their plants, their electric generating plants, which is a big deal.”
- In response to Trump’s new threats, Qalibaf said: “If you fight, we will fight, and if you come forward with logic, we will deal with logic. We will not bow to any threats, let them test our will once again so that we can teach them a bigger lesson.
- Iran’s Revolutionary Guard (IRGC) warned in its latest statement that “approaching military vessels to the strait of Hormuz is considered a violation of the ceasefire and will be dealt with harshly and decisively”.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
