Forex markets are trading cautiously as uncertainty surrounds a potential Memorandum of Understanding (MOU) between the United States and Iran. Reports of a possible agreement to extend a ceasefire, reopen the Strait of Hormuz, and initiate nuclear talks have boosted risk appetite, but the lack of official confirmation has kept investors on edge.
Dollar Weakens on Optimism
The US dollar weakened against major currencies on Thursday as markets welcomed the prospect of a US-Iran deal. The US Dollar Index held steady near 99.00 early Friday, while US stock index futures edged higher. However, the White House confirmed the reports but noted that President Donald Trump had not yet approved the agreement. Iran's semi-official Tasnim news agency, citing a source close to the negotiating team, reported that the text of the MOU had not been finalized or officially confirmed.
The mixed signals have left traders cautious, with the dollar under pressure from improved risk sentiment but supported by ongoing uncertainty. For more on related geopolitical risks, see Copper Dips Below $14,000 as Tariff Uncertainty and Geopolitical Risks Weigh.
Gold Rebounds After Two-Week Low
Gold prices experienced sharp swings, falling below $4,370 to a two-week low before rebounding during the US trading session. The recovery continued early Friday, with XAU/USD trading above $4,520. The precious metal's volatility reflects shifting expectations around the US-Iran situation and broader economic data.
Mixed US Economic Data Adds Uncertainty
Economic data released Thursday painted a mixed picture. The Bureau of Economic Analysis reported that annual inflation, as measured by the Personal Consumption Expenditures Price Index, rose to 3.8% in April from 3.5% in March. Core PCE inflation, excluding food and energy, increased 3.3% annually, matching expectations. Monthly, headline PCE advanced 0.4%, while core rose 0.2%.
Meanwhile, first-quarter annualized GDP growth was revised lower to 1.6%, down from the initial estimate of 2%. The combination of rising inflation and slowing growth has added to uncertainty about the economic outlook, keeping investors focused on upcoming data and Fed speeches.
Euro and Yen Under Pressure
The euro benefited from dollar weakness on Thursday, with EUR/USD gaining about 0.2%, but struggled to maintain momentum on Friday, trading slightly below 1.1650. The European Central Bank's Consumer Expectations Survey showed consumers are more attentive to price changes following the Iran conflict, despite inflation remaining near the ECB's 2% target.
In Japan, Chief Cabinet Secretary Minoru Kihara expressed concern over speculative currency movements during European trading hours on Friday, reiterating that authorities are ready to take appropriate action. USD/JPY traded in a narrow range above 159.00 after modest losses on Thursday. For more on forex intervention, see Indian Rupee Rebounds 2.5% from Record Low as RBI Cracks Down on Forex Speculation.
Pound and Australian Dollar Hold Firm
The British pound ended a two-day losing streak on Thursday, supported by dollar weakness. GBP/USD edged lower on Friday but remained comfortably above 1.3400. The Australian dollar also strengthened, with AUD/USD gaining 0.3% on Thursday and consolidating above 0.7150 early Friday, as investors assessed global developments.
Outlook
Investors are now awaiting preliminary May Consumer Price Index data from Germany, first-quarter GDP figures from Canada, and speeches from several Federal Reserve officials later Friday. The uncertainty surrounding the US-Iran MOU and mixed economic data are likely to keep forex markets cautious in the near term. For further analysis on dollar trends, see Analysts Forecast Dollar Decline as Energy Shocks and Policy Uncertainty Erode Safe-Haven Appeal.
This article is for informational purposes only and does not constitute financial advice.
