Gold (XAU/USD) surged over 1.50% on Friday, trading at $4,563 after rebounding from daily lows of $4,489, as news broke that the US and Iran are close to signing a deal to extend the ceasefire for 60 days to facilitate negotiations on Iran’s nuclear program [1]. Similarly, the British Pound (GBP/USD) rebounded to around 1.3460, supported by improving risk sentiment amid hopes for a US-Iran peace deal [2]. Both articles cite a senior Iranian source via Reuters stating that a political understanding has been reached between Iran and the US, but it is not yet finalized [1][2]. The proposed agreement would reopen the Strait of Hormuz and lift the US Navy's blockade, allowing free passage of vessels, which US President Donald Trump confirmed, adding that Iran must agree never to develop a nuclear weapon and that the Strait must be open for unrestricted shipping [1][2].
The anticipation of a ceasefire and reopening of the Strait of Hormuz pushed oil prices lower, with West Texas Intermediate (WTI) losing over 1.50% and trading around $86 per barrel, heading for its first monthly decline in five months, though still above pre-war levels [1][2]. This easing in oil prices is expected to temper inflationary pressures, which has led traders to trim bets on further Federal Reserve rate hikes. Money markets now see a 42% chance of a rate hike, with expectations shifting toward the Fed holding rates unchanged [1]. The US Dollar Index (DXY) fell to around 98.80 after reaching a seven-week high of 99.54, reflecting the weakening of the US Dollar on the news [2].
Recent US economic data showed mixed signals: the trade deficit narrowed, and the Chicago PMI rose to 62.7 in May from 49.2, surpassing the forecast of 50.5, indicating manufacturing sector expansion [1]. However, first-quarter 2026 GDP was revised down to 1.6% from 2%, and the core PCE Price Index, the Fed’s preferred inflation gauge, rose by 3.3% YoY in April, up from 3.2% in March [1].
Central bank officials provided cautious commentary. San Francisco Fed’s Mary Daly emphasized the importance of restoring price stability without harming the economy, while Philadelphia Fed President Anna Paulson noted ongoing inflationary pressures [1]. Fed Governor Michelle Bowman warned that disinflation has slowed and policy may need to change if war-driven inflation persists, and Kansas City Fed's Jeffrey Schmid suggested further tightening could be necessary, cautioning against viewing the oil shock as temporary [1][2]. Bank of England Governor Andrew Bailey stated that tolerating temporarily above-target inflation is appropriate given economic softness and uncertainty from the Iran war shock, and that the BoE has already tightened policy considerably [2].
Looking ahead, traders are focused on upcoming releases including the ISM Manufacturing Index, global flash PMI data, and the US Employment Situation Report, which will provide further insight into economic momentum and labor market conditions [1][2].
CONCLUSION
Progress toward a US-Iran ceasefire and the potential reopening of the Strait of Hormuz have boosted gold and the British Pound while easing oil prices and inflation fears. Market sentiment has shifted toward less aggressive central bank tightening, though policymakers remain cautious about inflation risks. Investors are now watching key economic data releases for further direction.