The US Dollar Index (DXY) fell towards 97.90 on Friday as risk appetite improved and demand for safe assets eased after reports said the US and Iran were still trying to keep a ceasefire framework in place. Donald Trump said talks were continuing and both sides were seeking to avoid wider conflict around the Strait of Hormuz.
Oil prices gave back part of earlier gains, reducing concerns about a fresh inflation jump. US Nonfarm Payrolls showed 115,000 jobs added in April versus about 60,000 expected, with unemployment steady at 4.3% and Average Hourly Earnings slowing on the month.
Dollar Pressures Build
The University of Michigan Consumer Sentiment survey dropped sharply, pointing to worries about inflation and uncertainty. US Treasury yields also fell, adding pressure to the dollar.
EUR/USD traded near 1.1780, while GBP/USD rose to about 1.3620 and USD/JPY slipped towards 156.60. AUD/USD moved up near 0.7240.
WTI held above $95.30 per barrel despite retreating from highs, as tanker traffic through Hormuz remained halted. Gold was near $4,720, supported by lower yields and ongoing geopolitical uncertainty.
Markets are watching data and central bank events from 11–15 May, including US CPI, PPI, retail sales, jobless claims, and speeches from the Fed, ECB, and BoE.
Key Week Ahead
The US Dollar’s decline towards the 97.90 level seems justified, given the recent slowdown in wage growth and consumer sentiment. We remember the stubborn inflation of 2024, when the annual CPI rate struggled to get below 3.4%, so this easing in price pressures signals that the Fed’s restrictive policies through 2025 are taking full effect. For now, this makes shorting the dollar against risk-sensitive currencies a viable strategy.
However, the geopolitical calm surrounding the Strait of Hormuz feels temporary, and we should be prepared for volatility. We saw back in 2024 how quickly Red Sea shipping disruptions could cause short-term spikes in oil and freight costs, reminding us that these situations can turn rapidly. This suggests it is prudent to use options to hedge against a sudden return of safe-haven demand for the dollar.
This coming week, all eyes will be on the US CPI data released on Tuesday, May 12th. If the core inflation number prints below a 3.5% annual rate, it will confirm the disinflation trend and likely push the DXY down toward the 97.00 support level. This data point will be the most critical catalyst for FX markets in the short term.
For the EUR/USD pair, the developing policy divergence between a potentially dovish Fed and a hesitant ECB is the main driver. A soft US inflation report could provide the momentum to test the 1.1850 resistance level. We will be closely listening to ECB President Lagarde’s speeches for any sign that the central bank is growing more worried about the Euro’s strength.
In commodities, WTI oil holding above $95 a barrel signals that significant supply risk is still priced in, creating opportunities for range-trading strategies if tensions continue to ease. Meanwhile, gold’s strength near $4,720 is being driven more by falling US Treasury yields than by immediate safe-haven flows. This is a continuation of the trend that began when yields peaked back in late 2024, making gold a core holding as long as the disinflationary narrative persists.
