Weekly Wrap-Up: Dollar Retreats as Risk Appetite Returns, While Gold Stays Firm

The US dollar ended the week on the back foot as markets moved away from defensive positioning and back toward risk assets. The main trigger was the reopening of the Strait of Hormuz during the ceasefire window, which sharply reduced immediate supply fears in oil and improved overall market sentiment. At the same time, cooler-than-expected US core CPI earlier in the week and softer housing-related signals helped reinforce the view that the dollar had room to ease further.

That shift in sentiment created a classic relief trade. Oil dropped hard, equities rallied, and the demand for safe-haven dollar exposure faded. Even so, traders did not fully price out geopolitical risk, because Tehran also warned that the Strait could be closed again if the US naval blockade remained in place. In other words, the week ended with a much calmer tone, but not with full certainty.

The Dollar Lost Its Safe-Haven Bid

The Dollar Index moved lower through the week and gave back more of the gains it had built during the recent Middle East shock. Reuters reported the index around 97.96 on Friday, down for a second straight week, as the market unwound safe-haven dollar buying after the Strait reopening. Earlier in the week, Reuters had also noted that softer inflation data was already pushing the greenback lower against major peers.

For traders, the message was straightforward: once oil stress cooled and immediate war-risk pricing eased, the dollar no longer had the same defensive support. That opened the door for stronger performance in non-dollar currencies, especially where domestic fundamentals were stable or improving.

GBP/USD Held Firm on UK Data and a Softer Dollar

Sterling stayed well supported during the week and remained near the mid-1.35 area. Reuters reported that the pound benefited from stronger-than-expected UK growth data, with the economy expanding 0.5% in February, while the broader dollar pullback added another layer of support. By late week, sterling had recovered most of the losses linked to the Iran conflict and was trading close to pre-war levels.

This mattered because GBP/USD was not simply rising on dollar weakness alone. It also had a domestic macro cushion. When a weaker dollar lines up with supportive local data, the pair becomes more resilient on dips, and that was clearly visible this week.

USD/JPY Turned Volatile as the Yen Recovered

USD/JPY gave back part of its earlier advance as the yen strengthened on the broader dollar pullback. Reuters reported that the pair moved away from the 160 zone and that Japanese officials continued to warn about speculative moves, keeping intervention risk alive in the background. That meant traders were less willing to push dollar-yen aggressively higher, even before any official action.

This remains an important signal for FX traders. Even when US yields are supportive, intervention risk can change the behavior of USD/JPY very quickly. This week was another reminder that the pair can reverse sharply once official pressure and broader dollar weakness appear at the same time.

USD/CAD Extended Lower as the Loonie Outperformed

USD/CAD moved lower into the end of the week, with Reuters reporting the Canadian dollar at a one-month high and the pair around 1.3675 on Friday. The move was driven mainly by broad US dollar softness and improved market sentiment after the Hormuz reopening, even though oil prices were falling at the same time. The loonie also drew support from declining US and Canadian bond yields and a broader unwind in defensive dollar demand.

That is worth noting because USD/CAD did not trade as a pure oil story this week. The larger driver was the broad shift out of the dollar. When the greenback weakens across the board, USD/CAD can continue lower even if crude is not helping Canada in the usual way.

Oil Collapsed as Supply Fears Eased

Oil was one of the clearest stories of the week. Reuters reported that US crude settled down about 9% on Friday after Iran said the Strait of Hormuz was open, while another Reuters report showed a drop of 11.45% to $83.85 by late Friday trade. The move reflected one core idea: if the market believes supply routes are reopening, the war premium in oil comes out fast.

That decline in crude had wider market consequences. Lower oil reduced inflation fears at the margin, improved the tone for equities, and made it easier for markets to rotate back into risk-sensitive assets. This was one of the main reasons the dollar lost support and why the broader market mood improved so quickly.

Gold Stayed Strong Despite the Risk-On Mood

Gold remained firm even as the market turned more constructive on risk. Reuters reported that spot gold had already reached a one-month high around $4,799 midweek, and later market coverage from FXStreet showed XAU/USD pushing above the $4,850 area on Friday as the dollar weakened further and falling oil helped revive hopes that the Fed might eventually have more room to ease.

This was an important market signal. Gold was not trading as a simple fear hedge alone. It was also trading as an alternative to a weakening dollar. That is why bullion managed to stay strong even while oil dropped and risk appetite improved. The currency side of the equation became just as important as the geopolitical side.

What Traders Should Watch Next

Looking ahead, the main question is whether this week’s dollar weakness becomes a broader trend or remains a temporary relief move. Traders will continue to monitor Middle East stability closely, because Reuters has already reported that the Strait reopening remains conditional and fragile. They will also keep watching how central banks respond if lower oil eases near-term inflation pressure but growth data stays mixed.

EUR/USD and GBP/USD may stay supported if the dollar remains soft, while USD/JPY will likely stay highly sensitive to any renewed intervention rhetoric from Japan. Gold may also remain firm as long as the dollar stays under pressure, even if the broader market mood remains constructive.

Final Takeaway

This was a week where geopolitics, commodities, and currencies all moved together. The reopening of the Strait of Hormuz pulled oil sharply lower, improved risk appetite, and took away a key pillar of support for the US dollar. Sterling and the Canadian dollar benefited, the yen recovered, and gold held strong because the weaker dollar became a major driver in its own right. For traders, the lesson was clear: once fear starts to unwind, cross-market repricing can happen very quickly.