The announcement of a two-week ceasefire between the US and Iran sparked a broad relief rally across the FX space this week. The relief rally was most evident in the sharp de-correlation between energy prices and the VIX volatility (fear) index. As Brent crude prices corrected sharply below $100 per barrel from March’s peaks near $120, the VIX Volatility Index plummeted to 19.5, below the level at the launch of Operation Epic Fury.
With the immediate threat of a wider regional conflict and further energy supply disruptions (such as the reopening of the Strait of Hormuz) receding, pro-cyclical and high-beta currencies have surged against the USD. The NZD (+3.0%) and AUD (+2.7%) lead the pack, benefiting from the rebound in global sentiment. Asian currencies like the KRW (+2.5%) and THB (+1.6%) are recovering as the energy tax on these oil-importing economies eases. JPY (+0.5%) remains the laggard among the gainers, as the USD’s haven bid unwound.
Stepping back to look at the broader trend since early 2026, the DXY Index was surprisingly muted compared to previous energy shocks. Despite Brent crude’s spike into a $100-120 range in Q1, the DXY held the 96-101 range set since mid-2025. We noted that the USD’s haven status during this oil shock was significantly lower than in 2022. Investors also became disillusioned with the "Trump Trade" seen in 4Q 2025 due to President Trump’s erratic and inconsistent handling of trade and geopolitical issues during his second term. Unlike in 2022, the Fed has no urgency to catch up with rising inflation driven by demand. Today’s higher oil prices are driven by supply disruption with negative growth implications. Today’s Fed Funds Rate is not near 0% but close to the US Treasury 10Y yield and above inflation and inflation expectations. Hence, the DXY is not rushing to extend its rise above 100 today, held back by a Fed with a wait-and-see stance on interest rates.
Global markets exhibited hardened resilience, which appeared as complacency from the outside. Having experienced a series of massive shocks in the 2020s – from the COVID-19 pandemic (2022) to Russia’s invasion of Ukraine (2022) to Trump’s Liberation Day tariffs (2025), this year’s current oil shock did not – would have historically triggered long-term panics, the market's relatively steady performance suggests that investors have internalized several hard-won lessons in the past five to six years. For example, rather than being blind to the risks, markets have shifted from a "Just-in-Time" efficiency model to a "Just-in-Case" resilience model. This transition has changed how investors price in disruptions. In the early 2020s, a supply shock was seen as a catastrophic failure; in 2026, it was treated as a manageable friction.
As for the ceasefire negotiations, they mirror the tensions leading up to Operation Epic Fury, with the US demanding the permanent dismantling of Iran’s nuclear infrastructure and a guaranteed reopening of the Strait of Hormuz. However, the current negotiation in Islamabad also differs significantly from those in Geneva. Following the death of the Ayatollah and the severe degradation of Iran's navy, the Iranian delegation is negotiating from a place of notable vulnerability. Defence Secretary Pete Hegseth also indicated that Operation Epic Fury successfully neutralized roughly 80-90% of Iran’s conventional naval and air defence capabilities. President Trump’s multiple ultimatum delays hint at a desire for an “off-ramp” before the April 29 War Powers Resolution deadline that requires him to withdraw US troops unless Congress provides authorization for the extension of the Iranian conflict.
Nonetheless, investors will pray for a quiet weekend, while standing ready to respond to any headlines out of Islamabad.
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Aristotle Onassis
April 10 in history
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