USD Drops Further on US-Iran Peace Hopes; Gold Rebounds Sharply

The US dollar extended its decline during the European session on May 7, as renewed optimism over a potential US-Iran diplomatic resolution weighed heavily on the greenback. Oil prices also dropped further, easing inflationary concerns that had previously supported the dollar. Gold rebounded strongly, benefiting from safe-haven demand shifting as geopolitical risk profiles adjusted — markets are recalibrating from wartime premium pricing toward a peace scenario. The Strait of Hormuz crisis, which had previously driven commodity prices higher, now appears closer to resolution, reducing the dollar's safe-haven bid. The US Dollar Index (DXY) fell as traders unwound long dollar positions tied to energy-driven inflation expectations. Lower oil prices may also reduce pressure on the Federal Reserve to maintain hawkish rhetoric, further undermining dollar support. Key support for the DXY sits near recent lows, while resistance is capped by prior session highs. Traders should monitor developments in US-Iran negotiations closely, as any breakdown in talks could reverse dollar weakness rapidly.