Markets experienced a decisive risk-on shift as optimism grew around a potential peace deal between the United States and Iran, with multiple sources reporting progress toward a framework agreement that could gradually reopen the Strait of Hormuz and lift the American naval blockade on Iranian ports [1][3][4]. Axios first reported, and a Pakistani diplomatic source cited by Reuters confirmed, that the two sides are nearing an agreement, with President Trump stating the US will end its military campaign and pause Project Freedom, contingent on Iran's compliance with the terms [1][4]. Trump added, “if they don’t agree, the bombing starts” [1].
The anticipation of de-escalation in the Middle East conflict sent WTI crude oil prices tumbling by more than 7% [1][4], and the US Dollar broadly lower against major currencies [1][3][4]. The US Dollar Index (DXY) fell to around 97.88, down roughly 0.15% on the day, returning to pre-war levels [4]. USD/CHF dropped to 0.7766, its lowest since March 10 [4], while USD/JPY remained muted near 156.40, reflecting a softer trend for the Greenback as easing geopolitical risks supported the Japanese Yen [3][4]. The US Dollar was weakest against the New Zealand Dollar (-0.28%) and strongest against the Canadian Dollar (+0.03%) on the day [2].
The proposed deal reportedly involves Iran pausing nuclear enrichment, the US lifting sanctions, and the release of billions of US Dollars in frozen Iranian funds, with both sides expected to end the blockade around the Strait of Hormuz [4]. Iranian officials confirmed they are reviewing the latest US-backed proposal [4].
The sharp drop in oil prices reduced inflation risks and led traders to reassess the Federal Reserve’s monetary policy path, tempering previously hawkish expectations [4]. However, Fed officials remain cautious: Cleveland Fed President Beth Hammack stated that the baseline outlook is for interest rates to remain on hold “for a long period,” citing uncertainty in the economic outlook and warning that the Iran conflict could affect both sides of the Fed’s mandate [2][4]. She emphasized that lowering rates more than justified would drive up inflation and that the Fed should maintain a neutral policy stance given the uncertainty [2][4]. Chicago Fed President Austan Goolsbee also warned against pre-emptive rate cuts tied to expected productivity gains, noting such moves could increase inflation [1].
On the data front, US Initial Jobless Claims rose to 200,000 for the week ending May 2, up from 190,000 previously but below expectations of 205,000–206,000 [3][4]. Continuing Claims declined to 1.766 million, indicating ongoing labor market resilience [3].
In Switzerland, inflation accelerated for a second month, with April CPI rising to 0.6% YoY from 0.3% in March, though still below the Swiss National Bank’s 2% target, supporting the SNB’s current hold stance [4].
Technical analysis for USD/JPY suggests a bearish near-term tone, with the pair trading below key moving averages and the Relative Strength Index indicating room for further downside if sellers regain control [3]. Minutes from the Bank of Japan’s recent meeting showed policymakers discussing potential rate hikes if energy shocks persist [3].
CONCLUSION
Optimism over a potential US-Iran peace deal has sharply reduced geopolitical risk premiums, sending oil prices and the US Dollar lower while boosting risk assets. The Federal Reserve is expected to keep rates steady amid ongoing uncertainty, with officials emphasizing caution. Market participants are closely watching further developments in the negotiations and upcoming US economic data for additional direction.