Dollar Falls on US-Iran Peace Deal

The dollar index slipped to around 99.5 on Monday, marking its lowest level in more than a week after the US and Iran struck a peace agreement that would restore access through the Strait of Hormuz, curbing demand for the dollar as a safe-haven asset. The announcement also pushed oil prices to a two-month low, helping ease fears of stronger inflation and tighter monetary policy. The agreement is expected to be signed in Switzerland on June 19 and reportedly includes lifting blockades, easing sanctions on Iran, and dismantling Tehran’s nuclear program. Investors are now turning their attention to the US Federal Reserve’s first policy meeting under new chair Kevin Warsh, with markets widely expecting rates to remain unchanged. The Reserve Bank of Australia and the Bank of England are also seen holding policy steady this week, while the Bank of Japan is expected to raise interest rates to bolster its currency.

The dollar index rose to around 99.8 on Friday but held most of the losses from the previous session, weighed down by reduced safe-haven demand as President Donald Trump said a peace agreement with Iran could be signed as soon as this weekend in Europe. The comments sparked a sharp drop in oil prices, easing concerns about stubborn inflation and the need for interest rate hikes. Meanwhile, data released on Thursday showed US producer prices climbed 6.5% year-on-year in May, the highest reading since November 2022 and slightly above expectations of 6.4%, highlighting the growing impact of the Middle East energy shock. Together with earlier figures showing consumer inflation accelerated to a three-year high, the latest PPI data is likely to reinforce expectations that the Federal Reserve could raise interest rates later this year.

The dollar index climbed above 100 on Thursday, nearing a ten-week high as investors grew increasingly concerned that a further escalation in the conflict between the US and Iran could push energy prices higher and add to inflationary pressures. President Donald Trump warned that the US would strike Iran “very hard” and indicated that Washington could take control of Kharg Island in the near future. Meanwhile, fresh data showed that inflation accelerated in May at its fastest pace in more than three years, with the impact of the Iran conflict contributing to rising price pressures. According to the Bureau of Labor Statistics, the producer price index increased 6.5% year-on-year and rose 1.1% from the previous month. In Europe, the European Central Bank raised interest rates for the first time in nearly three years, signaling that it can no longer delay action as inflation risks increase amid the ongoing geopolitical uncertainty. The euro remained largely stable against the dollar.