USD weakens as Iran talks ease tensions while yen surges on intervention fears. Mixed US data and key payrolls ahead keep FX markets on edge.
Key Highlight
- USD softens as geopolitical tensions ease: Signs of progress in US-Iran negotiations and a pause in Hormuz activity have boosted risk appetite, reducing demand for the dollar.
- JPY volatility returns: The yen strengthened sharply, with markets widely suspecting further intervention from Japanese authorities as USDJPY dropped aggressively.
- Conflicting US data signals: Strong growth indicators contrast with weaker services demand and rising input costs, highlighting ongoing stagflation concerns.
- Central bank sensitivity rising: The SNB has signalled readiness to step into FX markets if CHF strength persists.
Market Recap
Markets initially leaned toward a risk-on tone as a fragile ceasefire between the US and Iran held, easing safe-haven demand and pressuring the USD across G10 currencies. Sterling recovered modestly against the dollar after recent losses, while GBPJPY extended its upward trend for a third consecutive session.
Despite the yen’s recent strength, it remains the weakest G10 currency year-to-date and continues to hover near levels that previously triggered official intervention.
US macro data painted a mixed picture. Growth expectations improved notably, with the Atlanta Fed’s GDPNow estimate rising sharply, pointing to a stronger Q2 rebound. However, underlying data showed cracks. Services demand weakened and cost pressures intensified, reinforcing concerns around sticky inflation alongside slowing momentum.
Overnight, sentiment shifted further in favour of risk assets. The announcement of a pause in US operations in the Strait of Hormuz to allow space for negotiations with Iran triggered a broader market rally. At the same time, USDJPY saw a sharp decline of up to 1.8%, with price action strongly suggesting intervention from Japan’s Ministry of Finance.
Market Update
Geopolitics is once again the primary market driver. Any continued progress in US-Iran discussions is likely to keep risk sentiment supported, which in turn could extend downside pressure on the USD.
The yen remains a key focus. Markets are increasingly treating the 157 level in USDJPY as a renewed intervention trigger, meaning any move back toward this zone could prompt swift action from Japanese authorities.
On the data front, attention turns to US labour market indicators. Today’s ADP employment release offers an early signal ahead of Friday’s non-farm payrolls, the week’s most important event. A weaker labour print, combined with easing geopolitical tensions, would likely reinforce USD weakness and support further upside in GBPUSD.
In the UK, final Services PMI data offered little surprise, leaving sterling largely driven by external factors for now. However, upcoming local election results introduce a layer of political risk, any negative outcome for the government could weigh on GBP sentiment.
Meanwhile, the Eurozone growth backdrop remains fragile, with French PMIs still firmly in contraction territory. This keeps pressure on the ECB ahead of its upcoming policy decision.
06th May 2026
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