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Citing an unnamed source, Iran's Tasnim News Agency reported that Iran has not yet responded to the United States' latest proposal, which contains some unacceptable provisions.

According to the news agency, Iran sees US media reports on a deal between Iran and the US as aimed at justifying US President Donald Trump’s retreat from his latest hostile action on the Strait of Hormuz.

"Using the language of threat against Iran is ineffective, could worsen the situation for the US," the source added.

Market reaction

The US Dollar (USD) Index recovered from the two-month low it set near 97.60 following this headline. At the time of press, the USD Index was down 0.5% on the day at 97.97.

Societe Generale analysts argue that the Japanese Yen remains significantly undervalued versus the Dollar on a purchasing power parity basis, with USD/JPY far above fair value near 95. They highlight persistent carry trade positioning, repeated FX interventions near 160, and a surging Nikkei as signs that Japan’s economy may be improving and that complacent short-Yen positions could be vulnerable if authorities guide USD/JPY lower toward 150.

Undervalued yen and fragile carry trades

"The current USD/JPY level is ludicrously out of line with purchasing power parity (PPP), which is around 95."

"So far, it is retaining its familiar role as a “carry currency”, as the rate differential relative to other central banks makes for an attractive carry trade, even if it is smaller than it used to be."

"The last two spikes in USD/JPY towards 160 were repelled by FX intervention, but only temporarily."

"But the Nikkei may be telling us that Japan’s economy is on the verge of improvement, and there are lazy yen short positions in the market."

"The BoJ [Bank of Japan] and MoF [Ministry of Finance] may decide to help USD/JPY fall, but to 150 rather than the 140 level we have seen in previous corrections."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• USD/CHF loses ground for a second consecutive day as market sentiment improves.
• Hopes of a deal between Washington and Tehran weaken the US Dollar and support risk assets.
• Swiss inflation accelerates in April, supporting the Swiss Franc despite expectations of an SNB hold.

USD/CHF declines around 0.7790 on Wednesday at the time of writing, down 0.50% on the day, as the US Dollar (USD) remains under pressure in a more risk-positive market environment.

The pair’s decline comes amid growing optimism surrounding a potential agreement between the United States (US) and Iran. According to Axios, Washington and Tehran are moving closer to a memorandum of understanding that would provide a framework for future nuclear negotiations. This prospect is reducing demand for safe-haven flows linked to the US Dollar.

US Defense Secretary Pete Hegseth said that the ceasefire implemented nearly a month ago remains in place, while Secretary of State Marco Rubio stated that US offensive operations have ended. US President Donald Trump also announced a temporary pause in operations aimed at escorting vessels through the Strait of Hormuz to assess the chances of reaching a deal with Iran.

However, Trump warned on Wednesday that “if Iran does not agree to the deal, the bombing will resume at a much higher level,” limiting the improvement in market sentiment.

On the macroeconomic front, the ADP Employment Change report showed that the US private sector added 109K jobs in April, above market expectations of 99K. Despite the stronger-than-expected release, the US Dollar remains weakened by the improvement in risk appetite.

In Switzerland, data released on Wednesday showed that annual inflation accelerated to 0.6% YoY in April from 0.3% in March, slightly above the Swiss National Bank’s (SNB) average annual projection of 0.5%. The increase was mainly driven by higher energy costs following tensions in the Middle East.

Derek Halpenny at MUFG highlights that United Kingdom (UK) Gilt yields have jumped sharply, echoing past episodes of political and fiscal stress, with long-end Gilts still elevated versus pre‑2011 levels. He flags rising political uncertainty around UK local elections and Labour leadership risks, and sees increasing downside risks for the Pound over coming months, especially if Middle East tensions lift crude Oil prices.

Gilt selloff and UK politics weigh

"The price action in the UK Gilt market yesterday was certainly reminiscent of previous episodes of political and fiscal uncertainties that prompted heavy bond market selling. The 10-12bp jump in Gilt yields across the curve in part reflected catch-up after yields increased on Monday when the UK markets were closed but the jump in yields yesterday was much more than the moves in Bunds or US Treasuries on Monday that pointed to further underlying reasons for the Gilt market sell-off."

"More political instability could be on its way and investors could well be positioning for the potential for renewed political instability that could follow Thursday’s local elections. Polymarket shows a near 70% implied probability of PM Starmer not surviving through to the end of 2026, close to recent highs."

"Current polling (pollcheck.co.uk) estimates Labour to lose 1,164 council seats (from 2,303); the Tories to lose 563 seats while the Lib Dems gain 121 and the Greens 456. Reform are the big winners gaining 1,401 seats. Some polls suggest Labour could do a lot worse."

"Still, uncertainties are high and in the context of potentially months of renewed political uncertainty, we continue to see increasing downside risks for the pound especially if crude oil prices rise sharply on the back of re-escalation in the Middle East."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• USD/CAD lacks clear direction amid renewed hopes for a US-Iran agreement.
• Stronger-than-expected US ADP employment data helps the Greenback stabilize after earlier losses.
• Traders await further US-Iran developments and Canada’s PMI data for fresh direction in USD/CAD.

USD/CAD struggles for direction on Wednesday as renewed optimism surrounding a potential US-Iran peace deal pressures the US Dollar (USD), while falling Oil prices weigh on the commodity-linked Canadian Dollar (CAD). At the time of writing, the pair is trading around 1.3608, down 0.08% on the day after hitting an intraday low of 1.3578.

Axios reported earlier in the day that Washington and Tehran are moving closer to a one-page memorandum of understanding (MOU) aimed at ending the war and establishing a framework for more detailed nuclear negotiations.

The report said the proposed deal could include Iran pausing nuclear enrichment, while the US would lift sanctions and release billions of Dollars in frozen Iranian funds. Both sides are also expected to end the blockade around the Strait of Hormuz.

Following the news, both the US Dollar and Oil prices slumped, with West Texas Intermediate (WTI) crude falling more than 10% at one point before trimming some of its losses. The Canadian Dollar remains highly sensitive to Oil price movements due to Canada’s status as a major crude exporter.

Despite the renewed optimism, uncertainty remains elevated as previous peace talks and proposals between Washington and Tehran failed to produce a breakthrough. US President Donald Trump warned that if Iran does not agree to the terms under discussion, military action could resume at a “much higher level and intensity” than before. Trump also said the Strait of Hormuz would be reopened to all shipping, including Iran, if an agreement is reached.

This lingering uncertainty is helping limit deeper losses in the US Dollar, with the US Dollar Index (DXY) showing signs of stabilization after its earlier decline. The index, which tracks the Greenback’s value against a basket of six major currencies, is trading around 97.90 after hitting an intraday low of 97.62, though it remains down nearly 0.60% on the day.

The upbeat US ADP Employment Change report also offered some support to the Greenback. Private sector payrolls increased by 109K in April, beating market expectations of 99K and improving from the previous reading of 61K.

Looking ahead, market attention remains squarely focused on further developments surrounding the US-Iran negotiations, while the Canadian economic calendar features the release of the latest Purchasing Managers Index (PMI) data later in the American session.

Commerzbank economists Bernd Weidensteiner and Christoph Balz assess how incoming Fed Chair Kevin Warsh could reshape U.S. monetary policy and its implications for the Dollar. They highlight his criticism of past Fed policy, preference for trimmed-mean inflation, focus on AI-driven disinflation, desire for a smaller balance sheet, reduced forward guidance and a likely path toward rate cuts and weaker Fed independence.

Warsh’s stance on inflation and rates

"As for the outlook on inflation, however, he seems more optimistic than many current FOMC members. And this is due in no small part to what he sees as the productivity-boosting effects of the introduction of artificial intelligence (AI)—effects that, in Warsh’s view, received a boost from the Trump administration’s deregulation and tax policies."

"It is likely to be more difficult for Warsh to build a consensus that inflation risks are diminishing due to the increasing prevalence of artificial intelligence, and that this provides room for interest rate cuts. President Trump will certainly continue to put pressure on the Fed, however."

"Beyond clear majorities within the FOMC, this is likely to have implications for monetary policy, as historical experience suggests. The Fed will probably not be able to hold its ground against the president in the long run; formal independence offers only temporary protection. We continue to expect three interest rate cuts starting at the end of the year."

"The trend in government debt also suggests that presidents after Trump will also push for low key interest rates. After all, the U.S. federal government’s debt recently surpassed the 100% of GDP mark, and interest payments are playing an increasingly significant role in the federal budget. We therefore anticipate a gradual erosion of the Fed’s independence."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Brown Brothers Harriman’s (BBH) Elias Haddad reports NZD/USD has rebounded toward 0.6000 on broad US Dollar (USD) weakness, nearly erasing war-related losses. New Zealand’s Q1 labour data were mixed, with softer employment but firm wage growth. Swaps now discount a full 25 bps Reserve Bank of New Zealand (RBNZ) hike in July and 125 bps over 12 months, though Haddad warns the RBNZ may ultimately deliver fewer hikes, posing a headwind to NZD.

Mixed data versus hawkish market pricing

"New Zealand Q1 labor market data was mixed."

"The RBNZ sectoral factor inflation model dipped to 2.7% y/y in Q1 vs. 2.8% in Q4 and the bank forecasts a negative output gap of -0.9% over 2026."

"The swaps market firmed up odds of a first full 25bps RBNZ rate hike at the July 8 meeting, and a total of 125bps of tightening over the next twelve months to 3.50%."

"The risk is the RBNZ delivers less rate increases than is currently priced in which is a headwind for NZD."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

In April, US private-sector hiring experienced a decent increase, with employers adding 109K jobs, surpassing the 99K economists had anticipated, according to Automatic Data Processing (ADP). This solid performance exceeds the revised total of 61K for March, which was initially reported as 62K.

Nela Richardson, Chief Economist at ADP, observed, “Small and large employers are hiring, but we're seeing softness in the middle. Large companies have resources to deploy, and small ones are the most nimble, both important advantages in a complex labor environment.”

Market Reaction

The US Dollar Index (DXY) remains well on the defensive, breaking below the 98.00 support amid the generalised risk-on mood.

This section below was published as a preview of the US ADP Employment Change data at 11:00 GMT.

• The US private sector is forecast to have added 99K new jobs in April, up from 62K in March.
• If the data comes out in line with expectations, it would be the highest private-employment increase since July 2025.
• Strong employment-related figures would endorse the Fed’s hawkish pivot.

Developments in the Middle East conflict are likely to remain at the forefront this week, but investors will also keep an eye on a string of US labour market figures. One of the most relevant releases for April will be Wednesday’s Employment Change report by the Automatic Data Processing (ADP) institute, which is expected to show a 99K increase in net jobs in April, accelerating from the 62K advance seen in March.

If the report comes in line with expectations, the figures might bring some calm to the markets in a context of growing concerns about a stalled conflict in Iran, which has triggered a sharp increase in energy prices, boosting costs for US businesses.

The ADP report tends to set the stakes for the all-important Nonfarm Payrolls (NFP) report, which is normally published two days later. ADP figures are considered an approximation, signaling the labour market’s trend, rather than a sort of preliminary release, as both indicators normally show significant deviations.

Employment data might give some leeway to the Fed 

Labour figures will draw particular attention this month, as the US Federal Reserve (Fed) is pivoting towards a hawkish forward guidance, pressured by the escalating inflation pressures stemming from the US-Iran war.

The Fed left rates on hold last week, but three policymakers claimed to remove the “easing bias” language from the central bank’s statement, as, in their opinion, it is no longer appropriate to think about cutting interest rates considering the inflation outlook. Investors abandoned hopes of further rate cuts following the meeting, and the CME Group’s Fed Watch Tool is now pointing to a rate hike in mid-2027 as the Fed’s next move.

Apart from inflation, the labour market remains the other primary monetary policy goal of the Fed, and in that sense, further signs that employment creation gathers pace are good news. An upbeat ADP and, above all, Nonfarm Payrolls numbers this week would spare Fed policymakers the dilemma of having to choose between fighting inflation and promoting employment, and buy them time to assess the full impact of the Iran war on the US economy. 

When will the ADP report be released, and how could it affect the US Dollar Index?

The ADP Employment Change report for April will come out at 12:15 GMT. Market forecast anticipates a 99K increase in net jobs, which would be the strongest gain since July last year, following a 62K rise in March.

If these figures are confirmed, they might provide additional strength to the US Dollar, which is drawing support from the escalating tensions in the Middle East this week. A steady growth in employment eases pressure on the Fed to lower borrowing costs further and allows the central bank to focus on inflation, backing last week’s hawkish pivot.

The US Dollar Index (DXY) has been crawling higher this week, but it remains halfway through the monthly range. The Greenback seems to need a fresh catalyst to break this range, and a positive surprise in April’s employment numbers might be a good help. Weak ADP data, on the contrary, would weigh on the US Dollar, yet with downside attempts likely to remain limited as long as fears of a full-blown US-Iran war remain alive.

Guillermo Alcala, FX Analyst at FXStreet, sees the area above 99.00 as the main challenge for bulls: “The DXY is showing a moderate bullish momentum, but  it remains trading sideways, with the 99.00-99.20 area closing the way towards the 100.00 psychological level and early April highs at the 100.20 area.”

“Bearish attempts, on the contrary, are likely to find support above the 97.60-97.70 area unless positive development in the Middle East allows for some risk appetite to return. In that case, we could see the DXY aiming for February’s lows at the 96.50 area,” says Alcala.

• NZD/USD rallies about 1.5% on the day and approaches pre-war levels at 0.6000.
• An Axios report suggested that the US and Iran would be close to a peace deal.
• New Zealand's unemployment rate declined unexpectedly in Q1, providing additional support to the NZD.

The New Zealand Dollar (NZD) appreciates more than 1.5% against the US Dollar (USD) on Wednesday, as rumours that Washington and Iran are close to a peace deal have boosted risk appetite. The pair has broken above the top of the last three weeks’ trading range, to hit session highs a few pips shy of pre-war levels at the 0.6000 area

The US news website Axios, citing two US officials and other sources related to the process, reports that US and Iranian representatives are getting closer to a one-page memorandum of understanding to end the conflict and set the framework for more detailed nuclear negotiations at a later time.

Previously, US President Donald Trump had boosted market sentiment, announcing a pause in the plan to escort vessels through the Strait of Hormuz. These comments follow a press conference by US Secretary of State Marco Rubio, who affirmed on Tuesday that the objectives of the "Operation Epic Fury" in the Iran war had been achieved, suggesting that the US is not willing to resume hostilities.

In New Zealand, data released earlier on Wednesday revealed that the Unemployment Rate eased against expectations to 5.3% in Q1, from 5.4% in the previous quarter, despite lower-than-expected employment growth. Labour costs have also risen, adding pressure on the Reserve Bank of New Zealand (RBNZ) to hike interest rates. The NZD appreciated after the data release.

The focus now is on the US ADP Employment Change Report, due later on the day. ADP data is expected to show that private payrolls increased to 99K in April, from 62K in March, setting a positive precedent for Friday’s all-important Nonfarm Payrolls report.