- Strong employment numbers in the US were not enough to prevent the dollar from falling.
- Geopolitics and risk appetite remain the main drivers.
The US dollar came under pressure from sellers on Friday, and a strong labor market report failed to reverse the trend, only slowing the pace of decline. Nonfarm payrolls rose by 115K in April, nearly double expectations thanks to strong private sector hiring (+123K). The unemployment rate remained at 4.3%. Although wage growth accelerated from 3.4% year-on-year to 3.6%, this was below expectations of 3.8%. The job market shows no signs of tightening.
The strong economic data prompted futures markets to increase the probability of the Fed tightening monetary policy in 2026 from 14% to 21%. At the same time, expectations for a rate cut fell from 12% to just 6%. Normally, this would support the US dollar, but it appears that the market is focused elsewhere.
One reason is the decline in demand for the dollar as a safe-haven asset. Investors continued to buy into the S&P 500, boosting demand for US assets and creating a “Goldilocks”-style environment, where economic growth slows but remains resilient enough to support risk appetite. At the same time, markets were closely monitoring the negotiations between Washington and Tehran.
To the disappointment of the markets, Iran rejected the US proposals and set its own conditions. Donald Trump finds it completely unacceptable and intends to resume Operation Inherent Resolve. A week earlier, he angered Tehran and escalated the geopolitical conflict. Now history risks repeating itself. In addition, the escalating situation in the Middle East will boost demand for the US dollar as a safe haven asset.
However, there is still a glimmer of hope for a peaceful solution to the conflict. Neither Washington nor Tehran have yet announced that the talks will not take place. Moreover, there is a possibility that the meeting between Donald Trump and Xi Jinping will be followed by pressure on Iran – at least psychological pressure.
High oil prices and fears of accelerating US inflation in April forced gold to decline after several days of gains. As long as consumer prices remain high, central banks, led by the Federal Reserve, will continue to consider raising interest rates. In such circumstances, the non-interest bearing precious metal finds itself in an uncomfortable situation.
