Global markets experienced another significant shift on May 29 as investors reassessed geopolitical developments, central bank expectations, and the latest U.S. economic data. Improved optimism surrounding a potential extension of the U.S.-Iran ceasefire helped boost risk sentiment, while softer U.S. inflation and growth figures weighed on the dollar and supported precious metals.

Gold staged a strong recovery after several sessions of heavy selling, while the U.S. Dollar Index retreated from recent highs as traders scaled back expectations for additional aggressive Federal Reserve tightening. Meanwhile, USD/JPY continued its advance toward the psychologically important 160.00 level, raising speculation about possible intervention from Japanese authorities.

Gold Rebounds as Dollar Weakens

Gold prices bounced sharply after finding support near recent two-month lows. The recovery was driven by a combination of softer U.S. economic data, moderating inflation pressures, and reports suggesting progress toward a U.S.-Iran ceasefire extension.

The weaker U.S. dollar made gold more attractive for international investors, encouraging renewed buying interest after a prolonged correction. While inflation remains above central bank targets, signs of slowing economic momentum have prompted traders to reconsider the likelihood of additional Federal Reserve rate hikes.

Despite the rebound, gold traders remain cautious as future price direction will largely depend on upcoming economic data and changes in interest rate expectations.

Oil Markets Remain Highly Volatile

Crude oil prices experienced sharp intraday swings as traders reacted to conflicting headlines surrounding Middle East developments. Initial concerns about supply disruptions supported prices, but optimism surrounding a potential diplomatic breakthrough between Washington and Tehran later triggered a sharp reversal.

Although U.S. crude inventories declined, uncertainty surrounding the Strait of Hormuz and ongoing negotiations continues to keep a geopolitical premium embedded in energy markets.

The market remains sensitive to any confirmation of a long-term agreement, which could significantly reduce supply concerns and place further pressure on oil prices.

USD/JPY Approaches Critical Intervention Zone

One of the most closely watched developments in currency markets remains the continued rise of USD/JPY. The pair climbed toward the 160.00 level, a zone that previously attracted intervention by Japanese authorities.

The move has been driven by higher U.S. yields, policy divergence between the Federal Reserve and the Bank of Japan, and persistent demand for the dollar against lower-yielding currencies.

While the broader trend remains bullish, traders are becoming increasingly cautious as any signs of official intervention from Tokyo could trigger sharp volatility and rapid price reversals.

Euro Finds Support from ECB Rate Expectations

The euro strengthened despite ongoing geopolitical uncertainty as markets continued pricing in a European Central Bank rate increase. Recent comments from ECB policymakers reinforced expectations that inflation concerns remain a priority, increasing the likelihood of further policy tightening.

Combined with softer U.S. economic data, the prospect of higher European interest rates provided support for EUR/USD, allowing the pair to recover from earlier weakness.

Investors now await further ECB communication and economic data to determine whether the euro can maintain its recent momentum.

U.S. Dollar Retreats After Softer Economic Data

The U.S. dollar surrendered gains after several important economic indicators pointed toward slowing economic activity. Core PCE inflation, the Federal Reserve’s preferred inflation measure, showed signs of moderation, while GDP growth was revised lower and jobless claims increased.

These developments reduced expectations for additional aggressive monetary tightening and prompted traders to unwind some defensive dollar positions.

While Federal Reserve officials continue to emphasize a higher-for-longer policy stance, markets are increasingly focusing on evidence that economic growth may be cooling faster than previously expected.

Market Outlook

As the week draws to a close, financial markets remain heavily influenced by three major themes: Federal Reserve policy expectations, developments in U.S.-Iran negotiations, and central bank actions across major economies.

Gold has regained momentum as the dollar weakens, oil remains vulnerable to geopolitical headlines, and USD/JPY continues testing levels that could trigger official intervention concerns. Meanwhile, the euro remains supported by expectations of tighter ECB policy.

With upcoming speeches from Bank of England officials and Canadian GDP data on the calendar, traders should prepare for continued volatility across forex, commodities, and global financial markets as investors navigate an increasingly complex macroeconomic environment.