Dollar Rises on Fragile US-Iran Ceasefire

The dollar index climbed above 99 on Thursday, trimming losses from the previous session as a fragile ceasefire between the US and Iran kept investor sentiment cautious. Iranian media reported that oil tanker transit through the Strait of Hormuz remained halted following fresh Israeli strikes on Lebanon, while a senior Iranian official said three provisions of the ceasefire proposal had already been breached. On Wednesday, the dollar had dropped sharply after the US and Iran agreed to a two-week ceasefire, causing a sudden drop in oil prices and easing inflation concerns. Meanwhile, minutes from the Federal Reserve’s latest policy meeting indicated that a growing number of members viewed a rate hike as possibly necessary to control inflation, though many still hoped the next move could be a cut. Investors now turn to February personal spending and the PCE deflator on Thursday, followed by the CPI report on Friday, for further guidance.

The dollar Index remained below 99 on Wednesday, hovering near its lowest level in about a month, as news of a two-week ceasefire between the United States and Iran, which triggered a sharp drop in oil prices, eased investor concerns about an inflationary spiral and boosted expectations that the Fed could cut interest rates this year. At the start of the week, markets had priced in no chance of a rate cut, having previously anticipated more than two reductions before the conflict escalated. Meanwhile, minutes from the FOMC’s March meeting showed policymakers were concerned that Middle East hostilities could lead to sustained inflation requiring further rate hikes, although they still expected one rate cut this year. Investors now await the release of US March CPI data on Friday for additional clues on price pressures linked to the ongoing conflict.

The dollar index fell more than 1% to below 99 on Wednesday, hitting a four-week low and erasing its gains for the year after President Trump delayed his threat to strike Iranian civilian infrastructure by two weeks in what he called a “double-sided ceasefire,” contingent on Iran reopening the Strait of Hormuz. Trump also said the US had received a 10-point proposal from Iran that he described as a “workable basis for negotiations,” with the two-week window allowing the potential agreement to be finalized. Additionally, Iran has agreed to reopen the vital waterway for two weeks provided all attacks are halted, prompting a big drop in oil prices and easing inflation concerns for now. On the data front, investors look ahead to the release of US March CPI data on Friday which is expected to provide insight into how the Middle East conflict affected prices stateside. The dollar weakened across the board, depreciated the most against the aussie and sterling.