The US Dollar Index (DXY) fell towards 97.90 as risk mood improved and demand for safe havens eased. Reports said the US and Iran were still trying to maintain a ceasefire framework despite new military incidents.
President Donald Trump said talks were ongoing and both sides were seeking to avoid escalation around the Strait of Hormuz. Oil trimmed gains, reducing concern about a fresh inflation shock.
Labor Data And Risk Appetite
US Nonfarm Payrolls showed 115,000 jobs added in April versus about 60,000 expected, while unemployment stayed at 4.3%. Average hourly earnings slowed on the month, and University of Michigan consumer sentiment fell sharply; Treasury yields also declined.
EUR/USD traded near 1.1780 and GBP/USD near 1.3620, while USD/JPY fell towards 156.60. AUD/USD rose near 0.7240.
WTI held above $95.30 a barrel despite retreating from highs, with markets watching the continued halt of tankers through the Strait of Hormuz. Gold held near $4,720.
Markets are watching data due May 11–15, including US CPI, PPI, retail sales, jobless claims, and industrial production, plus Eurozone HICP and GDP and UK GDP and production. Scheduled speeches include ECB and Fed officials, plus BoE’s Mann.
Strategy And Positioning
The US Dollar Index is showing weakness, falling towards 97.90 as geopolitical tensions in the Middle East seem to be calming down. This drop from highs near 100.50 seen just two weeks ago suggests that safe-haven demand is fading. Slower wage growth in the recent jobs report also hints that inflationary pressures might be easing, which further reduces the dollar’s appeal.
We should consider positioning for continued dollar weakness against currencies like the Euro and British Pound. Options strategies on EUR/USD, currently near 1.1780, could be favorable, especially as volatility around energy prices may keep the European Central Bank from cutting rates aggressively. This dynamic reminds us of the inflation shock of 2022-2023, where central banks had to stay vigilant longer than markets first anticipated.
The Japanese Yen is also strengthening, with USD/JPY falling toward 156.60 as US Treasury yields decline. The US 10-year yield has slipped below 3.85% this past week, narrowing its premium over Japanese government bonds. This makes holding yen more attractive and suggests that puts on the USD/JPY pair could offer value even as broader market risk appetite improves.
However, we must be cautious ahead of next week’s key US inflation data. The Consumer Price Index (CPI) report on Tuesday is the main event, and a surprise to the upside could quickly reverse the dollar’s recent decline. Current market consensus for Tuesday’s Core CPI is a 0.2% month-over-month increase, but we’ve seen upside surprises in the first quarter of this year which warrants hedging our short-dollar positions.
Oil remains a source of major uncertainty, with WTI prices holding above $95.30 per barrel despite the diplomatic progress. Looking back at the Red Sea disruptions we saw through 2025, we know how quickly fragile supply routes can be threatened. Buying out-of-the-money call options on WTI could serve as an effective hedge against a sudden breakdown in the ceasefire framework.
Gold is currently consolidating near $4,720, benefiting from lower US yields but capped by the improved risk sentiment. It has retreated from its all-time highs above $4,800 set earlier this year, but it remains well-supported. A softer US CPI reading next week would likely push real yields even lower, providing a strong catalyst for gold to re-test those highs.
