Renewed optimism over a potential US-Iran peace deal has significantly impacted global financial markets, with multiple sources reporting a sharp decline in oil prices and increased risk appetite among investors [1][2][3]. Axios reported that Washington and Tehran are moving closer to an agreement that could end the conflict, pause Iran's nuclear enrichment, lift US sanctions, and release billions of dollars in frozen Iranian funds, as well as end the blockade around the Strait of Hormuz [1][2]. This news led to a plunge in oil prices, with Brent crude dropping 6% from its previous peak, and pressured the US Dollar (USD) as risk-sensitive currencies like the Euro (EUR), Australian Dollar (AUD), and New Zealand Dollar (NZD) rallied [1][2][3].
EUR/USD traded around 1.1750, up nearly 0.50% on the day after hitting an intraday high of 1.1796, its highest level since April 17 [1]. AUD/USD surged to 0.7239, its highest since June 2022, as improved risk sentiment outweighed strong US ADP jobs data [2]. The US Dollar Index (DXY) stabilized at 97.98 after touching an intraday low of 97.62 [1]. MUFG's Derek Halpenny noted that the US Dollar selling was reinforced by the oil price decline and peace progress, but warned that the situation in the Middle East remains unpredictable and could change suddenly [3].
Despite the positive momentum, uncertainty persists. US President Donald Trump warned that military action could resume if Iran does not agree to the deal, while Iran’s ISNA News Agency described the US proposal as containing “ambitious and unrealistic” demands and labeled parts of the Axios report as “speculation” [1]. This lingering uncertainty capped gains in risk assets and helped the US Dollar stabilize after its earlier decline [1].
On the macroeconomic front, the US ADP Employment Change report showed private sector payrolls increased by 109,000 in April, beating expectations and offering additional support to the Greenback [1][2]. Nela Richardson, Chief Economist at ADP, highlighted uneven hiring trends, with small and large employers actively hiring while mid-sized firms show weakness [2]. St. Louis Fed President Alberto Musalem stated that inflation remains “meaningfully above target” and warned that underlying inflation still requires attention beyond tariff and oil-related shocks. Musalem added that plausible scenarios could require interest rates to remain steady for a period, but also acknowledged the possibility of both rate cuts and hikes depending on future developments [1][4].
In the currency markets, Japanese Yen (JPY) strengthened amid intervention risks, with EUR/JPY declining 0.61% to 183.50 as traders remained cautious following reports of significant intervention by Japanese authorities [5]. Eurozone macroeconomic data showed persistent inflationary pressures, with PPI accelerating to 2.1% YoY in March and a monthly jump of 3.4%, fueling expectations of an ECB rate hike. However, activity indicators such as the Services PMI and Composite PMI remained in contraction territory, raising stagflation concerns [5]. Bundesbank President Joachim Nagel suggested a rate increase as early as June is possible if inflation does not improve rapidly [5].
Looking ahead, traders are focused on further developments in US-Iran negotiations and upcoming US labor market data, including weekly Jobless Claims and the Nonfarm Payrolls report [1].
CONCLUSION
The prospect of a US-Iran peace deal has triggered a risk-on rally, sharp oil price declines, and currency volatility, but lingering uncertainty and mixed macroeconomic signals are capping gains. While risk-sensitive currencies have outperformed, persistent inflation and intervention risks continue to shape market sentiment. Investors remain cautious, awaiting further geopolitical developments and key US labor data for clearer direction.