The US Dollar Index (DXY) drifted down towards 98.90 on Friday as improved risk sentiment tied to Middle East developments reduced demand for safe-haven assets. US core PCE inflation held at 3.3% year on year in April, which kept expectations that the Fed could maintain restrictive policy, while markets tracked reports of a US–Iran memorandum to extend a ceasefire by 60 days, reopen the Strait of Hormuz and begin nuclear talks. Against a softer dollar, EUR/USD moved up towards 1.1670 and GBP/USD rose towards 1.3470, even as UK fiscal concerns and slower growth remained in view. USD/JPY traded near 159.30; Tokyo core CPI eased to 1.4% year on year in May, and BoJ Governor Kazuo Ueda flagged risks from energy shocks feeding into wages and inflation expectations.
AUD/USD advanced towards 0.7190 as risk-sensitive currencies found support, while WTI traded near $88.00 a barrel on hopes of an extended ceasefire and reduced disruption risk around Hormuz. Gold surged towards $4,550 as markets weighed firmer risk appetite against ongoing geopolitical risk and elevated inflation pressures. The calendar includes central bank speakers from the BoE, ECB, Fed and BoJ between 29 May and 5 June, alongside releases spanning China PMIs, eurozone CPI and GDP, US JOLTS and payrolls, and a run of Swiss, Japanese, Canadian and Australian indicators.
Positioning For A Weaker Dollar Amid Geopolitical And Policy Shifts
We are adjusting our positions to reflect a weaker US Dollar, as the market pivots toward risk-on sentiment. The reported memorandum between the US and Iran is the primary driver, overshadowing the Fed’s persistently hawkish stance on inflation for now. Recent CFTC data shows speculative net short positions on the dollar have increased for the third consecutive week, suggesting this trend has momentum.
This dollar weakness makes long positions in EUR/USD and GBP/USD attractive heading into the first week of June. We will be closely watching the numerous central bank speakers, especially ECB President Lagarde and BoE Governor Bailey, for any divergence in tone that could accelerate these moves. Historically, coordinated dollar weakness often provides a tailwind for these pairs for several weeks following a major geopolitical de-escalation.
The situation with USD/JPY is more complex, as the pair is caught between a softening dollar and the Bank of Japan’s dovish policy. We see this creating a range-bound environment near the 159.00 level until we get more clarity from either BoJ Governor Ueda or the Fed. The slowing Tokyo CPI to 1.4% supports the view that the BoJ will not be rushing to tighten policy.
Commodities, Gold, And Key Data Releases In Focus
For oil traders, the potential reopening of the Strait of Hormuz puts a cap on WTI prices, limiting the upside above the $88 per barrel mark. Maritime data already shows a slight increase in tanker signals near the strait, indicating the market is pricing in reduced supply risk. However, we anticipate prices will remain supported by firm underlying demand, which will be tested by the upcoming EIA inventory reports.
Gold’s surge to the $4,550 region, despite improving risk appetite, highlights its role as a hedge against persistent inflation and lingering geopolitical risk. Central bank demand for gold hit a record high in the first quarter of 2026, with over 300 tonnes added to official reserves, which continues to provide a strong floor for prices. We expect gold to remain well-bid as long as core inflation in major economies stays elevated.
Looking ahead, the US jobs report on Friday, June 5, will be the most critical data point. A weaker-than-expected Nonfarm Payrolls number would likely fuel further dollar selling and validate the current market direction. Conversely, a strong report could quickly reverse the trend by reinforcing the Fed’s ‘higher for longer’ interest rate narrative.
