Forex markets trade cautiously amid uncertainty over US-Iran MOU

The US dollar weakened against major currencies on Thursday as investors grew optimistic about a possible agreement between the United States and Iran that could extend the ceasefire, reopen the Strait of Hormuz, and pave the way for nuclear talks.

Early Friday, the US Dollar Index remained steady near 99.00, while US stock index futures traded marginally higher.

Investors also looked ahead to preliminary May Consumer Price Index data from Germany, first-quarter Gross Domestic Product figures from Canada, and speeches from several Federal Reserve officials later in the day.

Markets react to reports of US-Iran agreement

Market sentiment improved after several media reports suggested that the US and Iran had agreed on a Memorandum of Understanding (MOU) aimed at extending the ceasefire for 60 days, reopening the Strait of Hormuz, and initiating nuclear negotiations.

The White House confirmed the reports but noted that US President Donald Trump had not yet approved the agreement.

At the same time, Iran’s semi-official Tasnim news agency, citing a source close to the country's negotiating team, reported that the text of the MOU had not yet been finalised or officially confirmed.

The developments helped improve risk appetite, putting pressure on the safe-haven US dollar.

US inflation rises while GDP growth is revised lower

Economic data released on Thursday presented a mixed picture of the US economy.

The US Bureau of Economic Analysis (BEA) reported that annual inflation, measured by the Personal Consumption Expenditures Price Index, rose to 3.8% in April from 3.5% in March.

Core PCE inflation, which excludes food and energy prices, increased 3.3% on an annual basis, matching market expectations.

Every month, the headline PCE Price Index advanced 0.4%, while the core reading rose 0.2%.

Meanwhile, the BEA revised first-quarter annualised GDP growth lower to 1.6%, compared with the initial estimate of 2%.

The combination of stronger inflation and weaker growth added to uncertainty around the economic outlook.

Gold rebounds after touching a two-week low

Gold prices experienced sharp swings.

The precious metal fell below $4,370, marking its weakest level in two weeks.

However, buyers returned during the American trading session, helping gold reverse course and finish the day higher.

The recovery continued early Friday, with XAU/USD trading above $4,520.

Euro struggles after gains

The euro benefited from broad-based dollar weakness on Thursday.

EUR/USD gained about 0.2% during the session but struggled to maintain momentum on Friday.

The pair traded slightly lower and remained below the 1.1650 level.

Meanwhile, the European Central Bank’s latest Consumer Expectations Survey showed that consumers became more attentive to price changes following the start of the Iran conflict, despite inflation remaining close to the ECB’s 2% target.

Japanese officials warn against speculative currency moves

Japan’s Chief Cabinet Secretary Minoru Kihara expressed concern over foreign exchange market movements during European trading hours on Friday.

Kihara said the government was highly concerned about speculative currency activity and reiterated that authorities stood ready to take appropriate action if necessary.

USD/JPY traded in a narrow range above 159.00 after posting modest losses on Thursday.

Pound and Australian dollar hold firm

The British pound ended a two-day losing streak on Thursday, supported by weakness in the US dollar.

Although GBP/USD edged lower on Friday, the pair remained comfortably above the 1.3400 level.

The Australian dollar also strengthened during the second half of Thursday's session, with AUD/USD gaining 0.3%.

Early Friday, the pair entered a consolidation phase and traded slightly above 0.7150 as investors assessed the latest developments in global markets.