Gold on the rise

• The precious metal has benefited from rumours of a de-escalation of the conflict in the Middle East.
• The US and Japan may agree on coordinated currency interventions.

The US dollar bounced back from sellers amid doubts about a swift resolution to the Middle East conflict and positive US economic data. ADP reported a 109K increase in private sector employment in April, the best performance since the start of 2025. The stabilisation of the labour market against a backdrop of accelerating inflation allowed the DXY to rebound by 0.5% from the day’s lows, recouping half of its losses since the start of the day on Wednesday. However, this was short-lived.

The US and Iran are working to resume talks, which are due to take place by 15 May. Markets react first and ask questions later. Consequently, rumours of a de-escalation of the conflict in the Middle East initially pushed the EURUSD pair to its highest level since February, near 1.1800. However, subsequent doubts caused the pair to retreat.

Geopolitics will cause more pain for Europe than for the US. All the more so, as Donald Trump threatens to raise tariffs on European cars from 15% to 25%. The economic slowdown, coupled with rising inflation due to higher energy prices, is creating stagflationary risks, forcing the ECB to tread carefully. Even if rates are raised, it is unlikely to be by much. The differential will remain in favour of the Americans, limiting the upside potential of EURUSD.

Apart from geopolitics, the dollar has also been influenced by Japanese government actions. From a fundamental perspective, the US dollar is stronger than the yen. However, a successful market reversal in favour of a stronger yen and a weaker dollar could place a heavy burden on Tokyo. The White House may opt for coordinated intervention with many countries, following the Plaza Accord model of 1985. Scott Bessent intends to visit Japan to meet with Prime Minister Sanae Takaichi and Finance Minister Satsuki Katayama to discuss, among other things, the foreign exchange market.

Rumours of de-escalation in the Middle East have allowed gold to post its best daily performance since late March. The precious metal is reacting sensitively to the market’s reduced inflation expectations following the fall in oil prices. This makes a Fed rate hike in 2026 inadvisable. If, however, official data on Friday disappoints, gold will gain fresh momentum.

The FxPro Analyst Team