Asian stocks rise as US-Iran talks keep oil, dollar and rates in focus

Asian equities advanced on Friday as investors monitored signs of progress in US-Iran negotiations, while the dollar held near six-week highs and oil prices remained volatile.

The moves reflected a market still being driven by geopolitical headlines, energy supply risks and shifting expectations for global interest rates.

Traders are watching whether talks between Washington and Tehran can ease tensions in the Middle East and reduce the risk of disruption to oil flows through the Strait of Hormuz.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3% on the day, taking its weekly gain to 0.6%.

Japan’s stock market climbed 2.0%, reaching its highest level in 10 days.

US stock futures gained 0.2%, while European futures rose 0.8%, pointing to a firmer tone across global equity markets.

Oil swings on Hormuz risk and peace hopes

Crude prices remained choppy as traders weighed the risk of supply disruption against tentative signs of diplomatic progress.

Oil had dropped earlier in Asian trading as concern eased over a near shutdown of the Strait of Hormuz.

The waterway remains a critical route for global crude shipments, and any prolonged disruption could add to inflationary pressure at a time when central banks are already sensitive to energy-driven price shocks.

Brent later rebounded 2% to $104.71 a barrel, although it remained on course for a weekly decline of about 6%.

The contract is still trading below its 50-day simple moving average near $106.77.

US West Texas Intermediate crude futures rose 1.66% late in the session to trade at $98.01.

Prices remain well above pre-war levels, and markets are expected to stay alert to further headlines from the region even if negotiations produce a partial de-escalation.

Dollar holds near six-week high

The US dollar remained firm as safe-haven demand and higher Treasury yields supported the currency.

The dollar index traded at 99.247 in early dealings, close to a six-week high.

The euro was at $1.1614, near the six-week low touched on Thursday and on track for a monthly decline of about 1%.

The Japanese yen traded at 159.11 per dollar, keeping traders focused on the possibility of intervention by Japanese authorities.

The currency’s weakness has sharpened market attention on the Bank of Japan’s policy path, particularly as inflation data complicates the case for further tightening.

Rates outlook shifts as inflation fears build

The prospect of extended energy supply disruption has also altered expectations for interest rates.

Before the latest phase of the conflict, markets had been pricing in the possibility of rate cuts later in the year.

But a sustained rise in oil prices could keep inflation elevated and force central banks, including the Federal Reserve, to maintain tighter policy for longer.

Mitch Reznick, head of fixed income at Federated Hermes, said there was “an unusually strong linkage between oil prices and global rates”, adding that what began as a shift in expectations was now feeding more directly into realised inflation.

That dynamic has pushed Treasury yields higher and reinforced support for the dollar.

Japan inflation cools as BOJ path stays uncertain

Data showed Japan’s core inflation slowed to a four-year low in April, adding uncertainty to the Bank of Japan’s next steps.

The weaker inflation reading may reduce pressure for immediate rate increases, even as the yen’s decline raises the risk of imported inflation.

That leaves policymakers balancing domestic price trends against currency weakness and broader market volatility.

What to watch next

For now, traders remain focused on the Middle East, the Strait of Hormuz and any sign that US-Iran talks are moving towards a more durable outcome.

Attention will later shift to inflation data from major economies, which could shape expectations for interest rates and currency moves.

Energy prices and the US dollar are likely to remain the most important market drivers until there is clearer news on Iran and oil supply risks.