Forex Today: Renewed hopes of US-Iran peace deal help market mood improve

US Dollar Price This week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the New Zealand Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.55%	-0.62%	-0.11%	0.32%	-0.23%	-0.73%	-0.08%
EUR	0.55%		-0.10%	0.50%	0.87%	0.32%	-0.18%	0.47%
GBP	0.62%	0.10%		0.54%	0.98%	0.42%	-0.09%	0.57%
JPY	0.11%	-0.50%	-0.54%		0.39%	-0.13%	-0.67%	0.07%
CAD	-0.32%	-0.87%	-0.98%	-0.39%		-0.48%	-1.06%	-0.40%
AUD	0.23%	-0.32%	-0.42%	0.13%	0.48%		-0.50%	0.15%
NZD	0.73%	0.18%	0.09%	0.67%	1.06%	0.50%		0.66%
CHF	0.08%	-0.47%	-0.57%	-0.07%	0.40%	-0.15%	-0.66%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

In a Truth Social post on Thursday, US President Donald Trump threatened that they will be hitting Iran "very hard tonight." While speaking to Fox News, Trump reiterated that there would be more bombing and said that he would prefer taking the Kharg Island. The US Dollar (USD) gathered strength with the immediate reaction, with the USD Index climbing to its highest level since late March above 100.30. Meanwhile, the data from the US showed that that producer inflation, as measured by the change in the Producer Price Index (PPI), rose to 6.5% on a yearly basis in May, marking its highest print since 2022.

However, Trump announced later that he called off strikes, claiming that they are close to reaching an agreement with Iran. Although Iran said that a deal is yet to be finalised, risk-sensitive assets rallied and the USD came under renewed bearish pressure. Following the earlier advance, the USD Index reversed its direction in the late American session and lost about 0.4% on the day, while Wall Street's main indexes registered impressive gains.

Early Friday, the USD Index stays flat on the day at around 99.70 and US stock index futures trade marginally higher. According to Iran's Mehr news agency, the Memorandum of Understanding (MoU) with the US includes the US' commitment to lifting sanctions, withdrawing its forces from around Iran and lifting the blockade. Moreover, the MoU also reportedly contains items about the reopening Strait of Hormuz, cancelling oil sanctions, and releasing Iran's frozen funds.

The European Central Bank (ECB) raised key rates by 25 basis points (bps) on Thursday and said that in baseline of new Eurosystem staff projections, headline inflation is expected to average 3.0% in 2026, 2.3% in 2027 and 2.0% in 2028. After coming in within a touching distance of 1.1500 in the early American session, EUR/USD turned north and gained nearly 0.4% on the day. Early Friday, EUR/USD fluctuates in a narrow range above 1.1550.

Gold (XAU/USD) gathered bullish momentum late Thursday and recovered above $4,200, rising 3.4% on the day and erasing a portion of its weekly losses in the process. XAU/USD holds steady above $4,200 in the European morning on Friday.

GBP/USD benefited from the renewed USD weakness on Thursday and ended the day in positive territory above 1.3400 before entering a consolidation phase on Friday. The data from the UK showed earlier in the day the Gross Domestic Product contracted by 0.1% on a monthly basis in April. In this period, the Industrial Production was unchanged and the Manufacturing Production was up 0.4%.

USD/JPY fell more than 0.3% but managed to hold above 160.00. The pair stays quiet early Friday and was last seen trading marginally higher on the day near 160.15.

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.