Trump Rejects Iran Peace Proposal as Markets Brace for Escalation or Deal

US President Donald Trump said Saturday evening he is "not satisfied" with Iran's latest peace proposal, leaving global markets in limbo as the standoff over the Strait of Hormuz enters its tenth week and traders weigh the binary outcome of major military escalation versus a negotiated settlement.

Speaking to reporters on a Florida runway Saturday, Trump said Iran's 14-point proposal—delivered Thursday evening to Pakistani mediators—did not meet US demands. "They're asking for things I can't agree to," Trump told reporters, adding that his options remained "either blast them away or make a deal."

The rejection marks the latest setback in fitful negotiations to end the conflict that began February 28, when the US and Israel launched wide-ranging strikes aimed at stopping Iran's nuclear program. A ceasefire has held since April 7, but the Strait of Hormuz—through which roughly 20% of global oil flows—remains effectively closed, creating severe economic pressures worldwide.

War Powers Deadline Passes, Trump Claims No Congressional Approval Needed

Friday marked the 60th day since Trump formally notified Congress of military action against Iran, triggering the 1973 War Powers Resolution requirement that presidents seek legislative approval for continued hostilities beyond 60 days or withdraw forces.

In a letter to congressional leaders Friday, Trump argued the ceasefire had "terminated" hostilities and paused the 60-day clock. "There has been no exchange of fire between the United States Forces and Iran since April 7, 2026. The hostilities that began on February 28, 2026 have terminated," Trump wrote.

Legal experts dispute this interpretation. Professor Heather Brandon-Smith from Georgetown University Law told the BBC that "a ceasefire is not a permanent end to the conflict" and would not stop the War Powers clock. Democratic Senator Tim Kaine said he does "not believe the statute would support" the administration's position.

The political maneuvering adds another layer of uncertainty for markets already pricing elevated geopolitical risk. Trump separately told reporters he was briefed Thursday by US Central Command on options ranging from "blast the hell out of them and finish them forever" to "make a deal."

Pakistan's Mediation Role Under Pressure

Pakistan has served as the primary conduit for US-Iran negotiations since the conflict began, with Pakistani officials shuttling proposals between Washington and Tehran. According to The Guardian, Field Marshal Asim Munir—Pakistan's military chief—spent three days in Tehran in April meeting with Iran's different power centers, while Prime Minister Shehbaz Sharif has worked to enlist regional support from Saudi Arabia, Qatar, Turkey, and Japan.

Iranian state media reported Sunday that Tehran had received a US response to its 14-point proposal and was reviewing it. Iran's Foreign Ministry spokesperson Esmaeil Baghaei told state media that "at this stage, we do not have nuclear negotiations," an apparent reference to Iran's proposal to defer talks on its nuclear program until after the war ends and both sides lift opposing blockades of Gulf shipping.

The sticking points are clear: Trump insists Iran commit to not acquiring nuclear weapons and resolve issues around its uranium enrichment program and stockpile of highly enriched uranium. Regional diplomats told The Guardian that a roughly 10-year moratorium on uranium enrichment—halfway between the two sides' positions—should be achievable, with Iran's stockpile potentially sent to Russia rather than surrendered to the US.

But Iranian officials appear to be overplaying their hand, according to regional analysts. Jauhar Saleem, formerly Pakistan's top diplomat and now president of the Institute of Regional Studies, told The Guardian that Iran's strategy of "dragging out the negotiation in the expectation of getting a better deal was highly risky."

Forex Impact: Safe Havens vs Commodity Currencies

The prolonged crisis has created sustained volatility across currency markets, with traders positioning for either resolution or escalation. The US Dollar Index (DXY) closed at 98.22 on May 1, down 1.8% over the past month, after Japan's massive ~$35 billion intervention reversed the dollar's post-FOMC rally last week.

Safe-haven currencies remain elevated as geopolitical risk premiums persist. The Japanese yen (JPY), despite authorities' aggressive defense of the 160.00 level in USD/JPY, has gained approximately 3% since late April intervention operations began. The Swiss franc (CHF) continues to benefit from haven flows, though analysts at RBC Capital Markets recently trimmed CHF forecasts as the immediate crisis stabilized into a ceasefire.

Commodity currencies have exhibited extreme volatility tied to oil price swings. The Canadian dollar (CAD), Norwegian krone (NOK), and Australian dollar (AUD) have all outperformed in 2026 on elevated energy prices—Brent crude surged past $120 per barrel immediately after the Strait of Hormuz closed on March 4, according to Wikipedia's economic impact article on the conflict.

Currency pairs with strong oil correlations—USD/CAD, USD/NOK, and AUD/USD—exhibited "2-3x normal daily ranges" during March, according to HotForexLead research. A National Bank of Canada analysis from April noted that "just a week after the Iran conflict erupted and WTI surged to $100 a barrel, the Canadian dollar stood out as the only reserve currency gaining ground."

However, if negotiations succeed and the Strait reopens, these gains could reverse sharply. ING's commodities team had forecast Brent prices falling "steadily below $60/bbl from the first quarter of 2026" before the conflict erupted—a stark contrast to current levels that remain elevated despite the ceasefire.

What Traders Should Watch

The coming week presents a critical juncture for both negotiations and market positioning. Key levels and catalysts include:

• Negotiation timeline: Iranian officials hope Trump will want to end the conflict before his summit with Chinese President Xi Jinping on May 14-15, according to The Guardian. This creates a two-week window for potential diplomatic breakthrough.
• Oil price action: Brent and WTI crude futures remain the primary real-time indicator of market expectations. A sharp decline would signal growing confidence in Strait reopening; renewed gains would indicate escalation fears.
• Safe haven flows: Watch gold (XAU/USD) and USD/JPY for changes in risk sentiment. A sustained break below 155.00 in USD/JPY would suggest escalating haven demand.
• Congressional action: While Trump claims the War Powers Act doesn't apply, some Republican lawmakers have indicated they might reconsider their positions after the 60-day mark. Any bipartisan effort to constrain presidential action would be a significant market-moving development.
• Pakistan mediator updates: Pakistani Foreign Ministry statements have proven accurate barometers of negotiation progress. Any indication that talks have broken down entirely would trigger immediate risk-off moves.

The binary nature of the outcome—peace deal or major escalation—creates extreme uncertainty for position-sizing. Traders should expect continued elevated volatility across oil-correlated currencies, safe havens, and emerging market pairs with exposure to energy import costs.

Economic Fallout Mounts

Beyond currency markets, the economic impact of the prolonged Strait closure is intensifying. Pakistan's monthly energy import bill has "almost tripled" because of the war, according to Pakistani officials cited by The Guardian. The UK House of Commons Library published a research briefing Sunday noting that talks cover "freedom of navigation through the Strait of Hormuz, Iran's nuclear and ballistic programme, reconstruction and sanctions, and a long-term peace agreement."

The US Treasury issued a warning Friday that any individual or company paying Iran a "toll" for passage through the Strait of Hormuz—a fee structure Tehran has proposed as part of a settlement—would risk violating US sanctions. This underscores the complex web of financial and legal issues that must be resolved for any comprehensive deal.

Market Outlook: Binary Risk Dominates

For central banks, the Iran conflict has complicated already difficult policy decisions. The Federal Reserve recorded four dissenting votes at its April meeting—the most since 1992—as members debated how to respond to cpi" title="Understanding inflation and CPI in forex">inflation risks from elevated oil prices versus slowing growth from supply disruptions.

The Reserve Bank of Australia faces a similar dilemma ahead of Tuesday's rate decision, with markets pricing 70-80% odds of a 25bp hike to 4.35% despite concerns that energy cost shocks could tip the economy into stagflation. The European Central Bank has signaled multiple rate hikes are probable if the Iran war continues and oil prices remain elevated.

For currency traders, the next 10-14 days will be critical. Trump's summit with Xi on May 14-15 provides a deadline of sorts for reaching agreement—but Trump's Saturday comments suggest he remains far from accepting Iran's terms. The stark choice between "blast them away or make a deal" leaves little room for a middle ground, creating a high-stakes poker game with global economic stability as the chips on the table.

Until clarity emerges, expect sustained volatility, elevated geopolitical risk premiums across all asset classes, and continued bifurcation between safe-haven winners (JPY, CHF, gold) and commodity currency performance (CAD, NOK, AUD) that hinges entirely on whether the Strait of Hormuz reopens or the conflict escalates.