Geopolitical Shockwaves Drive Commodities and FX Volatility

Global markets opened the week under intense volatility after weekend military strikes by the United States and Israel on Iran dramatically escalated Middle East tensions. Reports indicate that over 40 senior Iranian officials were killed, including high-ranking military leadership, significantly raising geopolitical risk premiums across commodities.

The immediate reaction was a sharp surge in safe-haven assets, a spike in oil prices, and renewed turbulence in foreign exchange markets.

Dollar Eases Despite Sticky Inflation Concerns

Last Friday, stronger-than-expected U.S. Producer Price Index (PPI) data intensified concerns that inflation remains persistent. The U.S. Dollar Index initially climbed but later reversed, closing down 0.12% at 97.67.

The final demand PPI rose 0.5% for the month, temporarily supporting the dollar. However, analysts noted that much of the pressure came from trade services components, which may not fully reflect real-time price movements.

U.S. Treasury yields declined, with the 10-year yield settling near 3.95%, while the 2-year yield fell to its lowest level since 2022. Despite elevated inflation concerns, traders continue to price approximately 62 basis points of rate cuts by year-end amid growing fears of labor market softening.

Gold Explodes Higher on Escalation Fears

Gold surged sharply during early Asian trading Monday, briefly rising 1.5% to a one-month high near $5,373 per ounce. Safe-haven flows accelerated as geopolitical risks intensified following direct military confrontation involving Iran.

Last week, spot gold closed at $5,230.56, marking a 7.6% gain for February and extending its winning streak to seven consecutive months. Lower Treasury yields reduced the opportunity cost of holding non-yielding bullion, amplifying demand.

Analysts suggest that if geopolitical tensions persist, gold could target the $5,450–$5,500 region in the near term.

Silver and platinum also recorded monthly gains, reflecting broad-based precious metals strength.

Oil Whipsaws Near Six-Month Highs as Hormuz Disrupted

Crude oil markets experienced extreme volatility. WTI settled Friday up 2.81% at $67.25 per barrel, while Brent closed at $73.27, gaining 3.35%. However, prices surged further in off-market trading following confirmation of expanded military conflict.

The escalation threatens the Strait of Hormuz, a critical maritime chokepoint responsible for more than 20% of global oil transportation. Reports indicate shipping disruptions, with hundreds of tankers anchored amid heightened security risks.

Compounding volatility, U.S. crude inventories surged by nearly 16 million barrels last week, the largest build in over a year. This created a sharp conflict between bearish supply data and bullish geopolitical risk premiums.

Analysts estimate that an $8–$10 per barrel geopolitical premium is already embedded in prices. If the conflict persists, oil could rapidly test the $100 level.

OPEC+ Moves to Stabilize Supply

In response to the crisis, OPEC+ held an emergency meeting on March 1 and agreed to increase production by 206,000 barrels per day beginning in April.

However, analysts caution that spare capacity outside Saudi Arabia and the UAE remains limited. Even with increased production, logistical bottlenecks caused by Hormuz disruption could prevent crude from reaching global markets efficiently.

Market participants remain skeptical that the announced increase will fully offset supply shock risks if military confrontation continues.

Currency Market Reaction

The euro edged higher to 1.1818 against the dollar, though February marked its first monthly decline since October. The Japanese yen strengthened modestly, with USD/JPY slipping to 155.95.

Sterling declined slightly to 1.3478, posting a 1.53% monthly drop amid domestic political uncertainty and upcoming UK fiscal updates.

The broader dollar trend remains sensitive to inflation data and Federal Reserve guidance, though geopolitical stress is temporarily shifting focus toward safe-haven flows.

Equity Markets Slide on Risk Aversion

U.S. equity markets closed lower Friday amid inflation and geopolitical concerns:

• Dow Jones fell 1.05%

• S&P 500 declined 0.43%

• Nasdaq dropped 0.92%, with technology shares underperforming

European markets were mixed, while Asian risk assets remain vulnerable to further escalation headlines.

Technical Outlook

Dollar Index:
Short-term support holds near 97.60, with resistance at 98.10–98.30. A sustained hold above 97.60 could favor further upside.

EUR/USD:
Resistance stands near 1.1820–1.1835, with downside targets toward 1.1750–1.1735 if rallies fail.

Gold:
Support rests at $5,300–$5,305. If stabilized above this zone, upside targets extend toward $5,395–$5,450.

CWG Strategy Outlook

Short-term strategies favor buying the dollar on dips within established ranges, with disciplined stop-loss management. Gold bias remains constructive above key support levels, while FX pairs remain highly sensitive to geopolitical headlines and inflation expectations.

Risk management remains essential given elevated volatility conditions.

Outlook

Markets enter the new week dominated by geopolitical escalation, inflation concerns, and supply shock risks. Gold and oil remain at the center of volatility, while currencies react to shifting safe-haven flows and evolving rate expectations.

If Middle East tensions persist and Hormuz disruptions continue, commodity markets could experience sustained upside pressure. Meanwhile, upcoming inflation and labor market data will determine whether Federal Reserve policy expectations shift further.