The US Dollar Index (DXY) slipped toward 98.00 during Asian trading hours on Friday, retreating from previous gains as market sentiment improved following signs of de-escalation in US-Iran tensions. Statements from Israel and Iran indicated that hostilities had subsided for the time being, and US President Donald Trump confirmed that the ceasefire with Iran remains intact, despite recent military clashes in the Strait of Hormuz. The US military conducted strikes on Iranian targets in Bandar Abbas and Qeshm Island, but officials emphasized these actions did not signal a resumption of war or the end of the ceasefire agreement. Iranian forces reportedly launched missiles, drones, and small-boat assaults against three US Navy destroyers, with the US responding under the right to self-defense. The Trump administration is awaiting Iran’s response to a proposal to reopen the Strait of Hormuz, expected within two days via Pakistan, aiming to end the nearly 10-week conflict [1][2][4].
Currency markets responded to the easing tensions. The Pound Sterling (GBP/USD) posted modest gains around 1.3560, supported by optimism for a US-Iran peace deal, which weakened the US Dollar’s safe-haven appeal. The Bank of England left its rate unchanged at 3.75%, with Governor Andrew Bailey warning of potential 'forceful tightening' if energy price shocks persist due to Middle East instability [2]. The Australian Dollar (AUD/USD) held steady above 0.7200, though it struggled for further gains amid lingering geopolitical risks. The AUD found support from the Reserve Bank of Australia’s hawkish stance, as the RBA signaled that inflation remains too high and further tightening is possible. Divergent policy outlooks between the RBA and the US Federal Reserve, with the latter seeing reduced rate hike expectations, also influenced the pair [3].
The Canadian Dollar (USD/CAD) depreciated to around 1.3660, holding gains despite lower oil prices. West Texas Intermediate (WTI) crude retreated to near $92.70 per barrel as easing US-Iran tensions reduced supply disruption fears. However, the CAD faced pressure from both declining oil prices and expectations of a dovish Bank of Canada, as recent GDP data pointed to an economic slowdown. The BoC continues to prioritize growth while inflation pressures remain contained [4].
Across all markets, traders are focused on the upcoming US Nonfarm Payrolls (NFP) report, expected to show 62,000 new jobs in April, a sharp decline from 178,000 in March. The US unemployment rate is projected to remain steady at 4.3%. The NFP outcome is anticipated to provide further direction for the US Dollar and related currency pairs. In Canada, employment data is also due, with economists forecasting 15,000 new jobs and an unchanged unemployment rate of 6.7% [1][2][3][4].
According to [1] and [2], market optimism about a US-Iran peace deal is weighing on the US Dollar, while [3] notes that renewed hostilities have kept some safe-haven demand for the USD. This highlights a discrepancy in the degree of de-escalation perceived across sources.
CONCLUSION
Easing US-Iran tensions have softened the US Dollar and supported gains in major currencies such as the Pound Sterling and Canadian Dollar, though some safe-haven demand for the USD persists amid ongoing geopolitical risks. Market participants are now turning their attention to the US and Canadian employment reports for further cues. The overall market sentiment remains cautious, with central bank policy outlooks and geopolitical developments continuing to drive currency movements.