The U.S. dollar weakened on Tuesday following President Donald Trump’s announcement of a ceasefire between Israel and Iran, which sparked a global risk-on rally and a notable decline in oil prices.
Trump’s declaration of a full ceasefire appeared to end the nearly two-week-long conflict that had displaced millions in Tehran and raised fears of a broader regional war.
Israel confirmed its agreement to the ceasefire, saying its objectives — particularly neutralizing Iran’s nuclear and missile threats — had been accomplished.
Currencies such as the yen and the euro gained ground as falling oil prices provided relief to major energy importers like Japan and the European Union, while the U.S., a net energy exporter, saw its currency decline.
The dollar dropped 0.75% to 145.03 yen, while the euro climbed 0.27% to $1.1609, nearing its highest level since October 2021.
Further weighing on the greenback were dovish remarks from Federal Reserve Governor Michelle Bowman, who indicated support for interest rate cuts in the near future. Fed Governor Christopher Waller also recently signaled openness to lowering rates at the Fed’s upcoming meeting.
Jefferies economist Mohit Kumar predicted rate cuts may not come until September, though recent softening data could nudge the Fed sooner. Trump also called for the Fed to slash rates by two to three percentage points.
Market expectations for a July rate cut rose to nearly 23%, up from 14.5% the previous day, according to CME’s FedWatch tool.
The dollar index, which tracks the currency against a basket of six peers, fell 0.14% to 98.09, continuing a decline that began earlier in the week.
Markets are also eyeing Fed Chair Jerome Powell’s congressional testimony scheduled for Tuesday and Wednesday, which could shed more light on the central bank’s policy direction.
The Australian dollar rose 0.7% to $0.6506, while the New Zealand dollar gained 0.75% to $0.6025. The Israeli shekel surged 1.5% against the dollar, hitting its strongest level since February 2023.
“This is clearly a positive development for market sentiment,” said Rodrigo Catril, senior currency strategist at National Australia Bank, referring to the ceasefire. “That said, we still need clarity on the terms of the truce and prospects for a lasting peace.”
In the crypto markets, risk appetite pushed Bitcoin up 2% to $105,832, while Ether climbed 3.2% to $2,425.
