Global financial markets opened the week under renewed geopolitical uncertainty as traders continued to monitor developments surrounding the ongoing US-Iran conflict and the fragile ceasefire situation near the Strait of Hormuz. Despite limited direct escalation over the weekend, tensions remain elevated after fresh attacks in the UAE and continued military positioning in the Gulf region.

The US dollar weakened for a second consecutive week as investors cautiously increased risk exposure amid hopes that diplomatic negotiations between Washington and Tehran could eventually stabilize energy markets. However, markets remain highly reactive to geopolitical headlines, keeping volatility elevated across forex, gold, and crude oil markets.

Strong US Non-Farm Payrolls data released on Friday reinforced expectations that the Federal Reserve may maintain higher interest rates for longer. Nevertheless, the US dollar failed to sustain bullish momentum as traders focused more heavily on geopolitical risks and softer inflation expectations caused by falling oil prices.

Meanwhile, gold prices remained supported near the $4,700 region as declining energy prices reduced inflation fears and increased speculation that the Fed could eventually shift toward a more accommodative policy stance later this year.

Crude oil prices remained under pressure despite isolated military clashes between the US and Iran, as markets increasingly priced in the possibility that both sides are attempting to avoid a broader regional escalation. WTI crude oil ended the session below the psychological $100 mark after traders aggressively unwound geopolitical risk premiums tied to earlier Strait of Hormuz disruption fears.

US Dollar Index Weakens Despite Strong US Labor Market Data

The US Dollar Index (DXY) declined 0.4% toward the 97.85 region, marking its fifth weekly decline in the past six weeks. Although April’s US employment report showed stronger-than-expected job growth and unemployment remained steady at 4.3%, the dollar failed to attract sustained buying momentum.

Market analysts believe traders are becoming increasingly cautious about overreacting to single-month labor market releases, particularly as geopolitical risks and energy market volatility continue driving broader macro sentiment.

Growing optimism surrounding a possible long-term ceasefire agreement between the US and Iran also reduced demand for traditional safe-haven flows into the dollar, while falling Treasury yields added further downside pressure on the greenback.

Gold Prices Hold Firm as Safe-Haven Demand Remains Elevated

Gold prices continued consolidating near the $4,700 region after posting weekly gains of more than 2%. Although stronger US employment data initially pressured bullion prices, falling oil prices and renewed uncertainty surrounding Middle East negotiations quickly restored safe-haven demand.

Analysts noted that lower energy prices could eventually reduce inflationary pressures, potentially increasing the likelihood of future Federal Reserve rate cuts. This combination supported renewed investor interest in non-yielding assets such as gold.

Additionally, continued weakness in the US dollar improved gold’s attractiveness for international investors holding foreign currencies.

Oil Prices Decline as Markets Bet on Diplomatic Progress

WTI crude oil fell sharply and settled near $95 per barrel after markets increasingly priced out fears of a prolonged supply disruption through the Strait of Hormuz.

Although military tensions between the United States and Iran remain unresolved, traders interpreted recent developments as a sign that both sides are attempting to avoid a full-scale escalation. Optimism surrounding potential diplomatic negotiations encouraged heavy profit-taking across energy markets.

However, analysts continue warning that oil markets remain highly vulnerable to sudden geopolitical headlines, particularly given unresolved concerns surrounding Gulf shipping routes, OPEC supply dynamics, and global inventory conditions.

EUR/USD Holds Firm While GBP/USD Extends Recovery

The euro strengthened modestly against the US dollar as improving market sentiment offset lingering concerns surrounding Eurozone growth and geopolitical instability. EUR/USD remained supported above the 1.17 region despite ongoing volatility in global bond markets.

Meanwhile, the British pound outperformed most major currencies after UK Prime Minister Keir Starmer reassured markets by confirming he would remain in office amid growing political speculation. GBP/USD climbed toward the 1.36 region as broader dollar weakness continued supporting sterling.

Commodity-linked currencies including the Australian dollar and New Zealand dollar also benefited from improving risk sentiment and reduced safe-haven demand for the US dollar.

USD/JPY Remains Sensitive to BOJ Intervention Risks

USD/JPY declined toward the 156.70 region as Japanese authorities continued warning markets against excessive currency speculation. Officials reiterated that intervention frequency remains unlimited if yen volatility intensifies further.

Analysts noted that rising oil prices and geopolitical uncertainty remain key risks for Japan’s economy, especially given the country’s heavy dependence on imported energy.

At the same time, expectations for additional Bank of Japan policy normalization continue supporting the yen after years of ultra-loose monetary policy.

Technical Outlook

US Dollar Index (DXY)

The dollar index remains vulnerable below the 98.30 resistance region. Immediate support is located near 97.70, while a recovery above 98.20 could encourage short-term bullish momentum.

EUR/USD

EUR/USD continues consolidating above major support near 1.1720. A break below 1.1700 could trigger deeper downside pressure, while resistance remains near 1.1800.

Gold (XAU/USD)

Gold remains technically supported above the 4,680 region despite recent volatility. A sustained move below 4,640 may expose deeper corrections, while resistance remains near 4,756.

WTI Crude Oil

Oil prices remain highly headline-sensitive as traders monitor developments surrounding the Strait of Hormuz and US-Iran diplomacy. Key support remains near $94.00 while resistance sits near $101.00.

Market Outlook

Markets are expected to remain highly volatile throughout the week as traders continue balancing geopolitical risks, Federal Reserve policy expectations, and energy market uncertainty.

Investors will closely monitor any developments involving US-Iran negotiations, potential shipping disruptions in the Gulf region, and upcoming inflation-related economic data from the United States.

The combination of softer oil prices, fluctuating Treasury yields, and cautious Federal Reserve commentary is likely to remain the primary driver of currency, commodity, and precious metal markets in the near term