Overview

The U.S. dollar slipped on Friday, positioning the greenback for a weekly decline of roughly 0.3%. At 16:50 ET (20:50 GMT) the dollar index was down 0.1% to 99.78, reflecting reduced safe‑haven demand as optimism grew around a prospective peace agreement between Washington and Tehran.

Iran‑U.S. Peace Developments

President Donald Trump announced on Thursday that a peace agreement with Iran had been approved and could be signed as early as the weekend. He said the deal would unblock the Strait of Hormuz—accounting for about one‑fifth of global oil and gas flows—lift the U.S. naval blockade of Iranian ports, and ensure Iran would never acquire a nuclear weapon. Later, Trump criticized Iran for statements he deemed untruthful, claiming the memorandum of understanding (MoU) differed from the written terms and that there was “no such thing as dealing in good faith” with Tehran. Iran’s foreign minister, Seyed Abbas Araghchi, countered that the MoU was “never been closer.” Pakistan Prime Minister Shehbaz Sharif echoed optimism, stating that a final text had been reached and Pakistan was working with both sides to finalize next steps.

Oil and Commodity Prices

Brent crude futures for August delivery fell to their lowest level in more than two months, though they remained above the pre‑war benchmark of roughly $70 per barrel. The decline in oil prices contributed to a softer risk‑off environment.

U.S. Inflation Data

May U.S. consumer price index (CPI) and producer price index (PPI) reports showed the largest annual increases since April 2023 (CPI) and November 2022 (PPI). Core CPI and core PPI were milder, but headline figures reached three‑year highs, reinforcing expectations that the Federal Reserve will face difficulty cutting rates and may need to maintain or tighten policy.

Central Bank Outlook

The Federal Reserve will hold its first monetary‑policy meeting under new chair Kevin Warsh next week. The meeting will be accompanied by policy decisions from other major central banks, including the Bank of Japan, the Bank of England, and the European Central Bank (ECB). The ECB became the first major reserve bank to raise rates, citing an Iran‑linked oil price spike as a key factor.

Market Commentary

Thierry Wizman, global FX and rates strategist at Macquarie, said lower oil prices would support foreign‑exchange markets regardless of central‑bank actions, noting that a reopening of the Strait of Hormuz would benefit oil‑importing economies and boost FX versus the dollar. Sanjay Raja, chief UK economist at Deutsche Bank, observed that the UK’s GDP contracted 0.1% in April—the first monthly decline since August—signalling a modest correction after a strong start to the year and highlighting the emerging energy shock’s impact on households and businesses.

Currency Movements

The British pound fell 0.1% to $1.3402 amid the UK GDP contraction and anticipation of the Bank of England’s upcoming policy meeting, where rates are widely expected to remain unchanged. The dollar’s weakness and the pound’s modest decline reflect broader risk‑on sentiment driven by the Iran peace narrative.

Political Context

In the United Kingdom, attention is turning to the Makerfield by‑election scheduled for next Thursday, an event that could have significant political implications for Prime Minister Keir Starmer’s government.

Contributors

The article was contributed by Ayushman Ojha and Pranav Kashyap.