Iran and Israel reach cease-fire – What now?

Although Iran and Israel haven’t exactly buried the hatchet, they have at least set it aside for now. Overnight, Donald Trump announced that the two sides had agreed to a 12-hour ceasefire, after which he declared the war would be considered “over”, a scenario that markets had already discounted in advance.     

In particular, the risk-on mood picked up after Iran launched medium-range ballistic missiles, a move it had pre-communicated to Qatari and U.S. officials. Investors saw this as the conflict’s endpoint. Following that, oil prices plunged more than 10%, with Brent falling below $70; XAUUSD also dropped on hopes of de-escalation.  

Even though Iran broke the ceasefire just hours after it was announced by firing a missile into northern Israel, and Israel’s defense minister responded with a heavy counterstrike targeting central Tehran, oil prices bounced back without panic — investors seemed confident the situation wouldn’t spiral out of control.     

What’s the outlook for oil prices now?        

First, there are no fundamental reasons for oil to remain around $80 for the time being. Major Iranian energy infrastructure remains intact, and the Strait of Hormuz remains open, meaning there was no significant disruption to global oil supply. At the same time, any major downside seems limited.       

If oil prices approach $70, thus staying within their current range, some of the Fed's inflationary concerns could be alleviated. However, there has been little progress with key partners such as China and the EU on another central front — trade wars — so the hawkish stance is not expected to disappear magically.  

Given this backdrop, no major surprises are expected from Fed Chair Jerome Powell’s upcoming testimony or the Q&A session, despite ongoing pressure from Trump to cut interest rates quickly, arguing they should already be two or three points lower to save the country around $800 billion annually.  

It is worth noting that Trump's insistent calls for a more dovish stance from the central bank are linked to the budget plan, which requires approval and includes a significant increase in spending. To support it, more borrowing will be necessary, so lower interest rates are essential to keep debt costs manageable.  

If Powell gives in to Donald Trump's calls for a rate cut, markets could rally initially, but the dollar could weaken as investors question the Fed's independence. On the other hand, if he holds firm, it is unlikely to significantly change market sentiment, as the recent Fed meeting already signaled a more restrictive policy for 2026.