Failure to reach a peace agreement between the US and Iran over the weekend dampened market sentiment and boosted demand for safe-haven assets. As a result, the US dollar strengthened against major currencies in early trading. Risk-sensitive currencies led the declines, with the Australian dollar and the South African rand each falling by 1%. Following US actions to block the Strait of Hormuz, crude oil futures jumped, while Asia-Pacific stock benchmarks declined. Government bonds and gold also experienced losses.

Analysts suggest that if investors view the negotiation outcome as merely a temporary setback to peace prospects, the scale of the market reaction could be limited. Andrew Ticehurst, Senior Strategist at Nomura, noted that over the past week, markets have started to focus more on the negative growth implications of high oil prices, rather than just their inflationary effects and implications for central bank hawkishness. Negotiation pathways remain open, and the 14-day deadline previously set by former President Trump leaves room for dialogue, suggesting some hope for progress remains.

Elias Haddad, Global Market Strategist at Brown Brothers Harriman, stated, "The announcement of a naval blockade of the Strait of Hormuz by the Trump administration will reignite safe-haven sentiment this week. Oil prices are likely to reclaim some of last week's losses, which were driven by ceasefire expectations. Furthermore, the potential for heightened tensions with China, a major buyer of Iranian oil, could add to market unease." He added, "While the energy shock may not be over, we maintain that the worst phase is likely behind us. If so, interest rate differentials between the US and other major economies should continue to anchor the US Dollar Index within the 96.00-100.00 range observed over the past year."

Kyle Rodda, Analyst at Capital.com Inc., commented, "The current situation is highly unstable. We need to monitor whether there are any new developments when talks resume, or if public rhetoric from either the US or Iran becomes confrontational again." Charu Chanana, Chief Investment Strategist at Saxo Financial, said the failure to secure a deal is a setback. For markets, this implies that relief rallies may fade. Gold could benefit from renewed geopolitical safe-haven demand, unless markets fully revert to a worst-case inflation shock scenario.

Fiona Lim, Senior Strategist at Maybank, suggested there might be some disappointment, but it was not entirely unexpected. The US dollar could see further strength at Tuesday's open. Certain Asian currencies, particularly those of net energy importers – such as the South Korean won, Philippine peso, Japanese yen, and Thai baht – which began weakening ahead of the weekend, may remain under pressure this week.

Kenneth Wu, Director at UOB Kay Hian Private Wealth Management, noted that the lack of a deal keeps geopolitical risk premiums elevated. Historically, such negotiation breakdowns lead markets to favor safe-haven assets at the open, implying buying support for both the US dollar and US Treasuries. The more critical dynamic unfolds subsequently. If restrictions on the Strait of Hormuz persist, markets could shift from pure risk aversion to a stagflation risk scenario. For government bonds, the base case involves a reflexive rally at the open, followed by two-way price action as markets weigh safe-haven flows against inflation concerns. The sustainability of this buying will depend heavily on the opening movement in oil prices.

The key question for Monday is whether markets interpret this as a temporary pause in talks or a structural collapse of the ceasefire framework. This distinction will determine whether risk-off sentiment fades quickly or extends further. Dilin Wu, Strategist at Pepperstone Group, believes the absence of a deal leaves uncertainty firmly in control. In the very near term, a stronger dollar accompanied by slightly lower yields is a reasonably likely pricing outcome. After the initial news-driven reaction, the bond market's response may become more nuanced.

He added, "On Monday, we could also see the energy and defense sectors outperform, with significant upward gaps at the open. Energy is the most direct beneficiary of supply-side constraints, while defense stocks reflect elevated and more persistent geopolitical risk premiums. However, the magnitude of the moves will depend on two key factors: the sustainability of oil price strength and whether markets confirm this as a prolonged supply shock rather than a brief sentiment-driven reaction."

Dionysios Kontos, Co-founder of the AI-driven market analysis firm Meyka AI, pointed out a crucial nuance: Iran's foreign ministry left the door open for further talks, indicating this is not a complete breakdown but an extension of uncertainty. This is vital for determining whether Monday's reaction is sharp or measured.

Sector-wise, energy is likely to be the dominant story on Monday. The Strait of Hormuz remains effectively blocked, and with no deal reached, uncertainty over oil supply stays high. Defense stocks may attract attention, though much of the positive news may already be priced in. Shipping and airline stocks remain under pressure, while growth and consumer discretionary sectors could face headwinds from a potential rotation into safer assets.

Experts widely view oil prices as the central transmission variable; their trajectory will dictate the subsequent depth of impact on inflation, central bank policy, and economic growth. Both Saxo's Chanana and Pepperstone's Dilin Wu emphasized that sustained rises in oil prices would re-anchor inflation expectations higher, thereby putting upward pressure on long-end bond yields. Chanana stated that a fresh rise in oil prices could dent risk sentiment again, and even without a full closure, the Strait of Hormuz remains an active chokepoint risk. However, given the significant differences between the parties on nuclear guarantees and the Strait issue, the outcome is not entirely shocking. For the US dollar, this provides some new safe-haven support, but a full-scale surge is unlikely without new military escalation.

Dilin Wu noted that short-end yields might still dip due to safe-haven demand, but any sustained increase in oil prices would quickly re-anchor inflation expectations at higher levels, applying fresh upward pressure on long-end yields.

Nick Twidale, Chief Market Analyst at AT Global Markets Australia Pty, said, "I anticipate oil prices will open higher on Monday alongside the US dollar, driven by safe-haven flows. Equities are expected to take a significant hit, and yields could be pushed higher. For me, a key disappointment in recent days has been that flows through the Strait of Hormuz remain below 10% of normal levels. Most investors had hoped for increased shipping traffic through the strait following the announcement of a ceasefire."