A wave of optimism swept global financial markets after US President Donald Trump announced a pause on 'Project Freedom,' the US-led operation to restore commercial shipping traffic through the Strait of Hormuz, in hopes of finalizing a peace deal with Iran [2][3][5][6]. Trump stated that the pause was requested by Pakistan and other countries, following what he described as 'tremendous military success' against Iran, and that the offensive stage of 'Operation Epic Fury' is concluded [1][6]. US Secretary of State Marco Rubio confirmed that military objectives had been achieved, while Defense Secretary Pete Hegseth noted that the ceasefire 'certainly holds' for now, though some sources report ongoing exchanges of fire in the Gulf [1][4][6].
The easing of Middle East tensions undermined the safe-haven appeal of the US Dollar, prompting broad-based selling and lifting risk-sensitive currencies. The USD/CAD pair extended losses for the second day, trading around 1.3600, while GBP/USD moved away from weekly lows to the 1.3580 region, and EUR/USD strengthened above 1.1700 to 1.1720 [1][2][3]. The Australian Dollar (AUD/USD) advanced to 0.7220, supported by improved AiG Industry Index data, and NZD/USD rebounded above 0.5900 despite mixed New Zealand jobs data, with the unemployment rate edging lower to 5.3% in Q1 2026 [4][5].
The US Dollar weakened against all major currencies, with percentage declines ranging from -0.14% against CAD to -0.26% against GBP and -0.24% against EUR [2]. The British Pound drew additional support from the Bank of England's signal that rate hikes could be appropriate if inflation persists [2]. Meanwhile, expectations for a more hawkish US Federal Reserve were tempered as falling crude oil prices eased inflationary concerns. West Texas Intermediate (WTI) slumped to near $97.50, with API data showing US crude inventories fell by 8.1 million barrels for the week ending May 1, compared to a consensus decline of 2.8 million barrels [1][6]. Goldman Sachs analysts warned that global oil inventories are approaching their lowest level in eight years, highlighting supply risks despite the current price drop [6].
Forward-looking statements from multiple sources indicate that traders are closely watching the US ADP Employment Change report and upcoming speeches by FOMC members for further direction, with the US Nonfarm Payrolls (NFP) report on Friday expected to be a key driver of volatility [2][3][5]. Geopolitical headlines and developments in the Middle East are anticipated to continue influencing market sentiment and trading opportunities across major currency pairs [2][3][5].
There is some discrepancy regarding the status of the US-Iran ceasefire: while Trump and Rubio emphasize the conclusion of offensive operations, Defense Secretary Hegseth and other sources note ongoing exchanges of fire and that the ceasefire is not fully settled [1][4][6].
CONCLUSION
The pause in US operations in the Strait of Hormuz and renewed hopes for a US-Iran peace deal have triggered a risk-on rally, weakening the US Dollar and boosting major currencies and commodities. Falling oil prices and easing inflation concerns are tempering expectations for aggressive US monetary tightening. However, ongoing geopolitical uncertainty and upcoming US economic data releases are likely to keep markets volatile in the near term.