Oil nears pre-war levels as the US and Iran sign peace agreement. Fed keeps interest rates unchanged

Key Takeaways

• The Federal Reserve kept rates unchanged but delivered a hawkish message, signaling at least one potential rate hike in 2026.

• The US Dollar Index reclaimed the 100.00 level as markets priced out expectations for future rate cuts.

• Gold rallied early in the week on peace-deal optimism before reversing lower following the Fed meeting.

• The US-Iran peace agreement and reopening of the Strait of Hormuz triggered a sharp decline in oil prices, removing much of the war-related risk premium.

• Japan‘s Nikkei and South Korea’s Kospi reached new all-time highs, extending the global AI-driven equity rally.

• SpaceX experienced significant volatility, soaring above $225 before retreating to around $173.

• Federal Reserve Delivers a Hawkish Hold

As widely expected, the Federal Reserve left interest rates unchanged at 3.50%-3.75%. However, the surprise came from the updated dot plot and policy guidance. Policymakers now project the federal funds rate ending 2026 around 3.8%, signaling that at least one rate hike remains possible next year rather than the easing cycle many investors had anticipated.

The market reaction was immediate. The US Dollar Index (DXY) surged back above the psychological 100.00 level. Treasury yields moved higher. Gold came under pressure, falling below $4,200 after its early-week rally. Major US indices sold off following the announcement.

As inflation risks remain elevated, policymakers are not yet comfortable discussing rate cuts.

In the stock market, SpaceX surged above $225 during the week amid strong enthusiasm surrounding the company‘s AI, satellite, and space infrastructure businesses. However, profit-taking and broader market volatility later triggered a sharp pullback, with shares falling toward $173 by week’s end.

• US-Iran Peace Agreement Ends Months of Conflict

The second major development during the week was the signing of a peace agreement between the United States and Iran, effectively ending the Gulf conflict and giving hopes of reopening the Strait of Hormuz. The deal includes sanctions relief for Iran and the normalization of oil shipments through one of the worlds most important energy corridors.

This major develoment removed a substantial geopolitical risk premium from crude oil prices. Brent crude fell toward $77 per barrel. WTI declined toward the mid-$70s. Oil prices are now approaching levels seen before the outbreak of the conflict, and crude is on track for roughly a 9-10% weekly decline.

Gold initially benefited from optimism surrounding the peace agreement and expectations of easier financial conditions. However, the Feds hawkish stance quickly reversed those gains, pushing bullion lower as the stronger dollar and rising yields reduced the appeal of non-yielding assets.

• Asian Equity Markets Continue Their Historic Rally

Japanese equities extended their remarkable rally. The Nikkei 225 jumped above 71,000 for the first time in history following the Bank of Japans decision and improving global risk sentiment.

South Koreas Kospi also continued its historic advance, reaching new all-time highs and trading above the 9,000 level for the first time. Strong gains in technology and AI-related shares continued to attract global capital into the market.

• Key Economic Data of the week