Rising Oil prices dampen risk appetite

Markets grow impatient

Since the April 8 two-week ceasefire, which was extended last week, there has been growing hope that an agreement will be reached between the US and Iran, putting an end to the two-month-old conflict. However, as some expected, this is proving a much harder endeavour than originally perceived, especially since US President Trump wants to come out of the current situation as a winner, even if he does not achieve any of his objectives.

Notably, since last Friday, there has been a renewed effort, with the Iranian side proposing a phased agreement and US officials preparing their response despite doubting Iran’s true will to end the conflict. This feels like progress, but until a face-to-face meeting takes place in Pakistan and a provisional agreement is reached, the chances of a restart of hostilities, burning any bridges of communication, remain heightened.

While both sides have their own targets – Iran wants to appear equal to the US, and the US aims to negate Iran’s chances of developing nuclear weapons – the rest of the world is predominantly interested in energy supplies via the Strait of Hormuz. The dual blockade is making oil supply harder by the day, as mostly Asian countries fight for the same oil ships, pushing oil prices higher. At the time of writing, the June WTI oil future is trading just above $100, confirming the ongoing upward pressure that could intensify if there is no agreement in place soon.

Hawkish BoJ meeting despite keeping rates stable

The energy price rally will be the key discussion point in the four remaining central bank meetings of the week. Earlier today, the Bank of Japan kept rates unchanged but managed to avoid disappointing yen bulls. The hawkish dissent of three committee members and the upgrade in the quarterly inflation projections shielded dollar/yen from a move above 160, but will this prove enough?

While markets are currently fully pricing in a 25ps rate hike in September, investors are clearly growing impatient with the BoJ’s inability to announce the first rate hike of 2026 despite the inflation acceleration and the impressive Shunto wage round, and today’s small price action is quite indicative of that.

In the unlikely event that tomorrow’s Fed meeting proves a touch more hawkish than anticipated – a low probability scenario since it will be Chair Powell’s last gathering in charge – dollar/yen could finally climb above the 160 level, retesting the Japanese Finance Ministry’s tolerance and reaction function. It is widely assumed that, given the recent rhetoric from Finance Minister Katayama, the threshold for intervention has shifted upwards, potentially closer to the 162 level.

Mixed risk sentiment in markets

The move higher in oil prices has put risk assets, in particular cryptocurrencies, and gold under varying degrees of pressure. Notably, gold is edging lower today, breaking its recent sideways trading but confirming the lack of appetite for this precious metal despite the continued geopolitical risks. This move could be attributed to further selling from Middle Eastern gold holders, as today’s 70 pip decline in euro/dollar cannot fully justify the 1.2% correction currently being recorded in gold.

Amidst this mixed environment and ahead of tomorrow’s Fed meeting and pivotal earnings announcements, investors today will be able to evaluate the results of the usually unpopular 7-year Treasury auction, and, more importantly, the April Conference Board Consumer Confidence index. Following the solid March print and the upside surprise in the March retail sales report, another positive figure today could go a long way towards dispelling fears of weak consumer appetite due to elevated energy prices, potentially supporting the dollar and keeping Fed rate cut expectations during 2026 subdued.