The US Dollar experienced notable weakness on Wednesday, driven by renewed optimism over a potential agreement between the United States and Iran, as reported by Axios. Both articles confirm that Washington and Tehran are moving closer to a memorandum of understanding that could establish a framework for future nuclear negotiations, with the possibility of Iran pausing nuclear enrichment in exchange for the US lifting sanctions and releasing frozen Iranian funds. Additionally, both sides are expected to end the blockade around the Strait of Hormuz if a deal is reached [1][2].
This optimism has reduced demand for safe-haven flows linked to the US Dollar, leading to declines in USD pairs such as USD/CHF, which fell around 0.50% to 0.7790, and USD/CAD, which traded near 1.3608, down 0.08% on the day after hitting an intraday low of 1.3578 [1][2]. The news also pressured Oil prices, with West Texas Intermediate (WTI) crude falling more than 10% at one point before trimming losses. The Canadian Dollar, sensitive to Oil price movements due to Canada's status as a major crude exporter, was weighed down by the drop in Oil [2].
Despite the positive sentiment, uncertainty remains as previous US-Iran negotiations have failed to yield lasting results. US President Donald Trump warned that if Iran does not agree to the deal, military action could resume at a "much higher level and intensity" than before, which has limited the improvement in market sentiment and helped stabilize the US Dollar Index (DXY) after its earlier decline. The DXY was last seen around 97.90, down nearly 0.60% on the day after hitting an intraday low of 97.62 [1][2].
On the macroeconomic front, the US ADP Employment Change report showed private sector payrolls increased by 109K in April, surpassing market expectations of 99K and improving from the previous reading of 61K. This data provided some support to the Greenback, though it was not enough to offset the broader risk-on sentiment [1][2]. In Switzerland, annual inflation accelerated to 0.6% YoY in April from 0.3% in March, slightly above the Swiss National Bank’s projection of 0.5%, mainly due to higher energy costs following Middle East tensions [1].
Looking ahead, market participants are closely monitoring further developments in the US-Iran negotiations. In Canada, attention is also on the upcoming release of the latest Purchasing Managers Index (PMI) data later in the American session [2].
CONCLUSION
Market sentiment turned risk-positive on Wednesday as hopes for a US-Iran deal pressured the US Dollar and Oil prices, while safe-haven demand waned. However, lingering uncertainty and warnings of potential renewed military action kept the Greenback from deeper losses. Investors remain focused on further US-Iran developments and key economic data releases.