The US-Iran ceasefire agreement has weighed on oil prices, causing safe-haven demand for the dollar to plummet.
On Wednesday, following the announcement of a two-week ceasefire between the US and Iran, Brent crude futures plummeted 16%, marking the largest single-day drop in nearly six years, before recovering slightly.
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Ebbing safe-haven sentiment also pressured the US Dollar Index, with the ICE Dollar Index plunging 1.2% at one point to erase its entire year-to-date percentage gain. The Bloomberg Dollar Spot Index fell 0.8%, its worst single-day performance since January.

The dollar weakened across the board against 16 major currencies, with the euro, pound, and yen also seeing intraday percentage gains of over 1%.
However, according to CCTV News, on the 8th local time, the Strait of Hormuz was closed again. According to previous reports, after Israel's attack on Lebanon, Iran halted tanker transit through the Strait of Hormuz. The rally in risk assets has eased somewhat, while the dollar rebounded 0.6% from its daily low.
<h2>Ceasefire Triggers Rapid Unwinding of Long Positions</h2>
The news of the two-week ceasefire between the US and Iran quickly triggered a market repricing based on an expected de-escalation in the Middle East.
The dollar's previous strength was partly derived from its status as a relatively safe asset and the market's belief that the US economy is more resilient to global energy shocks.
Leah Traub, portfolio manager at Lord Abbett &amp; Co., stated:
<blockquote>
This is a pure relief rally, especially after the escalation early last week. Given the disproportionately negative impact of war and energy price shocks on regions outside the US, it is completely logical that non-US markets are rallying more strongly.
</blockquote>
Market participants pointed out that the rapid volatility in the foreign exchange market on Wednesday partly reflected traders closing out long dollar positions, while there has not yet been a fundamental shift in investors' baseline judgments.
A team of foreign exchange strategists at Citigroup wrote in a Wednesday report:
<blockquote>
With the two-week ceasefire acting as an anchor, leveraged investors are more inclined to redeploy sidelined capital back into the market. This dynamic makes us hesitant to buy the dollar on dips for the time being.
</blockquote>
<h2>Rate Cut Expectations Reignited, But Uncertainty Remains</h2>
Another logic behind the pressure on the dollar lies in the recalibration of Federal Reserve policy expectations.
During the Middle East conflict, surging energy prices reignited inflation concerns, leading to a significant compression in market expectations for a Fed Rate Cut.
As oil prices fell, market expectations for interest rate hikes by the European Central Bank and the Bank of England this year decreased significantly. Bets on a Fed Rate Cut in 2026 have heated up again, with current market pricing implying a roughly 33% probability of one rate cut this year.
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Analysts pointed out that if the decline in oil prices continues, expectations for a rate cut are likely to rise further.
Sentiment shifts in the foreign exchange options market have corroborated this pivot.
A gauge of the expected one-month volatility for a basket of currencies against the dollar has fallen to its lowest level since the conflict began. The options market indicates that traders' bullish sentiment toward the dollar has contracted significantly over the same period.
According to options trading data from the Depository Trust &amp; Clearing Corporation (DTCC) compiled by Bloomberg, Wednesday's options volume was approximately 11% above the recent average, with trading in the euro and pound being particularly active.
<h2>Sustained Passage Through the Strait of Hormuz is the Key Variable</h2>
The core focus of the ceasefire agreement is the guarantee of transit through the Strait of Hormuz.
Andrew Hazlett, a foreign exchange trader at Monex Inc., commented:
<blockquote>
The ceasefire news and the easing of energy crisis concerns have put significant pressure on the dollar. The core question over the coming days will be: to what extent will shipping in Hormuz recover, and will this lead to a sustained de-escalation of the situation?
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Skylar Montgomery Koning, a macro strategist at Bloomberg, also noted that Brent crude has currently retraced only about half of its percentage gain, and the dollar's downward move seems to have slightly exceeded the range supported by commodity signals.
She stated that longer-term foreign exchange trends will depend on how much material damage previous shocks have already inflicted on the economy.
Despite the marked improvement in market sentiment, the stability of the ceasefire agreement remains in doubt.
On Wednesday, according to maritime traffic tracking data, the oil tanker &#34;AUROURA,&#34; which was originally heading toward the exit of the Strait of Hormuz, suddenly changed course near the coast of Oman's Musandam Peninsula. After completing a 180-degree turn, it returned to the depths of the Persian Gulf.
Fighting in the Middle East has not completely ceased, and the Strait of Hormuz remains under blockade. This highlights the fragility of the agreement and means that if the situation re-escalates, the dollar's decline could quickly reverse. Kathleen Brooks, Research Director at XTB, stated:
<blockquote>
While there are reasons to remain cautious, the magnitude of the market's volatility has been remarkable. This remains a news-driven market, and any sign of the ceasefire agreement being threatened could once again trigger sharp fluctuations.
</blockquote>

Iran claims the foundation for negotiations has been undermined, and the Strait of Hormuz has been closed again; the White House announced that the first round of US-Iran talks will be held in Pakistan on the 11th. The situation is drawing attention. Do you think the talks can proceed smoothly?

Iran claims the foundation for negotiations has been undermined, and the Strait of Hormuz has been closed again; the White House announced that the first round of US-Iran talks will be held in Pakistan on the 11th. The situation is drawing attention. Do you think the talks can proceed smoothly?

The Hormuz National Park closes again, leaving US-Iran peace talks in limbo.

The US Dollar Index recorded its largest single-day decline of the year on Wednesday, briefly erasing its entire year-to-date percentage gain. The euro, pound, and yen all saw intraday percentage gains exceeding 1%. Market participants noted that this volatility was driven primarily by the rapid unwinding of long positions. With falling oil prices, Fed Rate Cut expectations have reignited. However, the stability of the ceasefire agreement remains uncertain, with the dollar rebounding 0.6% from its daily low; the market remains dominated by headlines, and the situation could reverse at any moment

- The announcement of a two-week ceasefire between the U.S. and Iran led to a significant drop in Brent crude oil futures, falling 16%, the largest single-day decline in nearly six years, before a slight recovery.  
- The easing of risk sentiment put pressure on the dollar, with the ICE dollar index plunging 1.2%, wiping out all gains for the year, while the Bloomberg dollar index declined by 0.8%.  
- The stability of the ceasefire and the reopening of the Strait of Hormuz are critical, as ongoing geopolitical tensions could quickly reverse the dollar's downward trend.

Oil Prices Plunge 16% as Dollar Falters, Erasing Year-to-Date Percentage Gains