Tensions Over Hormuz Strait, Escalating Trade Tensions, and Divided Federal Reserve Set Stage for Volatile May

Federal Reserve's Divided Vote and Iran Peace Talks Spark Volatility Across Assets

The global markets grappled with a divided Federal Reserve and the failure of Iran peace talks to break the deadlock, resulting in significant volatility across various assets.

The dollar index climbed above 99 after the Federal Reserve delivered its most divided vote since October 1992, with a 8-4 split in favor of holding rates steady at 3.50-3.75 percent. One official voted for a rate cut, while three others agreed with the hold but objected to the easing bias in the statement language, a signal that prompted traders to price out rate cuts entirely for 2026.

The macroeconomic backdrop was mixed but broadly resilient, with Q1 GDP growing at an annualised 2 percent, core PCE coming in as expected, Core Durable Goods Orders beating forecasts at 3.3 percent, and flash PMIs holding in expansion. However, consumer sentiment slumped to 49.8, its lowest since 1978, and inflation expectations climbed, keeping stagflationary concerns alive.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The greenback later retreated toward 98, dragged lower by a sharp yen advance likely supported by official intervention. Meanwhile, Wall Street extended its run, with the S&P 500 and Nasdaq reaching record closing highs, supported by strong earnings and brief optimism around renewed diplomatic signals from Iran.

Precious metals had a turbulent but ultimately softer week. Gold and silver opened with modest gains after Iran's fresh proposal offered a flicker of optimism, then gave ground as hawkish Fed signals and high oil prices reasserted themselves. COMEX Gold rebounded from $4,570 to $4,673 an ounce, and silver from $73.4 to $77.5 an ounce on Friday on negotiation hopes, with both posting modest weekly declines of around 2 percent and 0.7 percent respectively.

The overall structure of the gold market points toward range-bound trade with a slight positive bias as long as prices continue to hold above immediate supports. On the upside, Rs 1,53,000 per 10 gram acts as immediate resistance, followed by a stronger hurdle near Rs 1,55,500. On the downside, Rs 1,47,950 is acting as near-term support, while a break below this could drag prices towards Rs 1,44,500, weakening the current bullish outlook.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

LME base metals drifted lower, with copper slipping 2 percent, but sharp downside capped by pre-holiday restocking in China ahead of the May 1-5 Labour Day period. Aluminum extended losses from multi-year highs despite supply curbs, and zinc dipped 4 percent despite falling LME stocks and low treatment charges signaling tighter fundamentals.

Oil remained the week's most volatile market, with Brent surging above $126 a barrel and WTI above $109 per barrel, highest in four years, as the prospect of a diplomatic breakthrough continued to recede. Escalating US pressure on Iran, including potential extension of a naval blockade and tighter enforcement of tanker movements through the Strait of Hormuz, amplified supply fears.

The week ahead starting from May 4 is quiet on the data front, with several major markets closed for holidays. The US jobs report and speeches by Fed officials will be the main events to watch. A fresh trade front also emerged after Trump announced a 25 percent tariff on EU cars and trucks, accusing the bloc of failing to honour an existing trade agreement and Brussels hit back, warning it would act to protect European interests. With the Iran standoff unresolved, rate cuts off the table, and trade tensions flaring again, markets head into May with the risk skew firmly to the downside.