Ahead of NFP, Dollar Edges Lower on Growing US - Iran Optimism
Dollar weakened as investors scaled back safe-haven positions amid growing optimism that the United States and Iran are nearing a peaceful resolution. Attention now turns to the upcoming Nonfarm Payrolls (NFP) report.
The US Dollar Index (DXY) fell below 98.00 on Thursday (May 7), retreating toward levels last seen before the Strait of Hormuz blockade. The move reflects improving market sentiment as prospects for a deal between Washington and Tehran gain traction.
Sources involved in the mediation by Pakistan revealed that the US and Iran are close to agreeing on a brief memorandum to end the conflict. Similar reports were previously published by Axios, citing US officials familiar with the negotiations.
Meanwhile, Ismael Baghaei, spokesperson for Iran's Foreign Ministry, told ISNA that Tehran is still reviewing the latest US proposal. He added that Iran will deliver its formal response to Pakistan once the evaluation process is complete.
Rising optimism over a potential peace deal has dampened demand for the dollar as both a safe-haven asset and a petrodollar. Brent crude prices fell sharply in the previous session—dropping more than 7.75%—and were seen hovering around $105 per barrel on Thursday's open.
Beyond geopolitical developments, the dollar also faces pressure from lingering concerns over possible foreign exchange intervention by Japan. Sharp declines in USD/JPY on April 30 and May 6 were widely viewed as abnormal, fueling speculation of large-scale action by Japanese authorities.
On the data front, recent US economic indicators have delivered mixed signals ahead of Friday's NFP release. The latest ADP report showed private payrolls increasing from 61,000 to 109,000 in April 2026, but still falling short of market expectations of 118,000.
While the NFP report is considered a key gauge of US economic health, its impact may be limited if the actual figures align closely with consensus forecasts, potentially leaving expectations for Federal Reserve policy and the dollar's trajectory largely unchanged.
Elias Haddad, global market strategist at Brown Brothers Harriman, said the dollar's downside may remain contained. He noted that recent US data still supports the case for the Federal Reserve to maintain its stance towards higher interest rate policies.