Markets rally on U.S.-Iran peace hopes and robust AI demand

The EUR/USD pair moved higher during early European trading on Wednesday, approaching the 1.1730 level as the euro gained modest ground against the US dollar. Market sentiment was supported by growing optimism surrounding a possible diplomatic agreement between the United States and Iran.

On Tuesday, US President Donald Trump stated that “significant progress” had been made toward reaching a comprehensive deal with Iranian representatives. He also confirmed a pause in “Project Freedom,” an initiative aimed at ensuring commercial shipping through the Strait of Hormuz.

Earlier in the day, Iran unveiled a new framework to regulate maritime transit in the strategically important Strait of Hormuz, amid ongoing tensions with Washington. Investors are closely watching developments in the situation, as any signs of easing geopolitical tensions could bolster risk-sensitive assets, including the euro.

Meanwhile, expectations are building that the European Central Bank (ECB) could raise interest rates as soon as June 2026, as policymakers continue to grapple with persistent inflationary pressures. In contrast, the US Federal Reserve has maintained a steady policy stance, with no immediate indication of forthcoming rate cuts.

Later on Wednesday, market participants will turn their attention to the release of the US ADP Employment Change report for April, which could provide further direction for the currency pair.

Gold prices extended gains for a second consecutive session on Wednesday, rising above the $4,650 mark during the Asian trading hours and reaching a fresh weekly high. The upward move comes as the US dollar weakens broadly, pressured by growing optimism surrounding a potential diplomatic agreement between the United States and Iran.

The softer dollar has helped the precious metal rebound from Monday’s more than one-month low near $4,500. Additional support comes from declining crude oil prices, which have eased concerns about inflation and reduced expectations of a more aggressive policy stance from the US Federal Reserve. This environment tends to favor non-yielding assets such as gold.

On Tuesday, US President Donald Trump announced a temporary pause in “Project Freedom,” an initiative designed to safeguard commercial shipping through the Strait of Hormuz, to allow room for ongoing negotiations with Iran. He also indicated that meaningful progress has been made toward a comprehensive agreement. These remarks follow earlier signals from US officials suggesting a desire to avoid further escalation, alongside confirmation that a ceasefire between the US and Iran remains in place.

Hopes for a broader resolution, including an end to hostilities involving Iran and the reopening of the critical Strait of Hormuz, have boosted investor confidence while weighing on the dollar’s safe-haven appeal.

Investors are now turning their attention to the US ADP private-sector employment report due later on Wednesday, which may offer short-term direction. However, the primary focus remains on Friday’s closely watched US Nonfarm Payrolls report, expected to play a key role in shaping the near-term outlook for both the dollar and gold prices.

Oil prices moved lower on Tuesday, as signs of easing geopolitical tensions in the Middle East helped offset ongoing concerns about global supply. Investors also assessed a significant decline in US crude inventories.

Market sentiment was influenced by comments from US President Donald Trump, who announced a temporary pause in efforts to restore commercial shipping through the Strait of Hormuz. The move has raised expectations of a potential diplomatic breakthrough between Washington and Tehran.

According to Trump, while the broader blockade remains in place, “Project Freedom” — an initiative aimed at securing maritime traffic through the strategic waterway — will be halted briefly to allow negotiations with Iran to progress.

Despite the downward pressure on prices, losses were partially limited by tightening supply conditions in the United States. Data released by the American Petroleum Institute (API) showed that crude inventories declined by 8.1 million barrels in the latest reporting week, significantly exceeding market expectations.

In addition, gasoline stocks fell by 6.1 million barrels, while distillate inventories dropped by 4.6 million barrels, pointing to strong demand and constrained supply.

Traders are now awaiting official inventory data from the US Energy Information Administration (EIA), due later on Wednesday, for further direction on market fundamentals.

U.S. equities finished higher on Tuesday, supported by improving investor sentiment following more measured rhetoric from Washington amid recent tensions with Iran. Gains in technology and materials stocks, alongside a robust earnings season, helped lift major indices to fresh record levels.

Market momentum was largely driven by the technology sector, particularly semiconductor and hardware-related stocks, which accounted for a significant share of the US 500’s gains.

Investor confidence was further supported by signs that a ceasefire between the United States and Iran remains intact, despite heightened tensions earlier in the week.

Additional comments from both U.S. and Iranian officials suggested that diplomatic efforts are ongoing, helping to calm market nerves. This shift in tone contributed to a decline in oil prices, which in turn supported equities by easing inflation concerns.

On the economic front, recent labor market data offered a mixed picture. Job openings in March edged down slightly, according to the latest JOLTS report, although hiring activity showed some improvement. Separately, growth in the U.S. services sector continued in April, albeit at a slightly slower pace than expected, while price pressures remained stable.

Investors are now looking ahead to Friday’s closely watched Nonfarm Payrolls report, which is expected to provide further insight into the strength of the U.S. labor market.

In corporate developments, chipmaker AMD was scheduled to report earnings after the close, with markets focused on its performance in the competitive artificial intelligence segment. Elsewhere, results from several companies delivered mixed reactions, even as the broader earnings season has remained a key pillar of market support.