A two-week ceasefire agreement between the United States and Iran was announced by US President Donald Trump via Truth Social, with the deal contingent on Iran reopening the Strait of Hormuz, a critical oil chokepoint. However, the Strait remains closed, and a senior Iranian official indicated it could reopen later this week, potentially before a planned meeting between Washington and Tehran in Islamabad, Pakistan [1][2][3]. The ceasefire is described as fragile, with numerous conditions yet to be fulfilled, including Iran's demands for sanctions relief, withdrawal of US forces, compensation for war damages, and continued nuclear enrichment, which significantly reduce the probability of a lasting agreement [1][2][3]. Ongoing attacks in the Middle East, including Israel's continued operations against Hezbollah in Lebanon and recent drone strikes on Saudi Arabia's oil pipeline and fires at Kuwaiti energy sites, underscore the instability and elevated geopolitical risk [1][2][3].
The announcement triggered broad selling pressure on the US Dollar, with the USD/JPY pair falling near 158.30 and retaining a bearish bias, trading below key moving averages and resistance levels [1]. USD/CAD also weakened, trading around 1.3847 and extending losses for the third consecutive day, as the US Dollar Index (DXY) dropped to 98.80, down nearly 0.85% on the day [2]. GBP/USD surged, advancing more than 1.10% to a five-week high of 1.3484, as improved risk appetite lifted global equities and sank Oil prices, while Gold reached a daily high past $4,800 [3]. The DXY plunged 0.70% to 98.79, reflecting the broad retreat in the Greenback [2][3].
Market participants responded positively to the ceasefire, with global equities recovering and central banks relieved of the risk of a second round of inflation from the energy shock. Traders now expect the US Federal Reserve (Fed) to hold rates unchanged throughout the year, with nearly 10 basis points of easing priced in toward year-end, according to Prime Market Terminal [3]. In the UK, swaps markets trimmed hawkish bets on the Bank of England (BoE), with expectations shifting from at least two rate hikes to just one toward the end of the year following the ceasefire announcement [3].
Despite the initial optimism, uncertainty remains elevated. Iran has warned it could withdraw from the ceasefire if attacks on Lebanon persist, and the IRGC cautioned that any entry of foreign aircraft into Iranian airspace would breach the agreement [2]. Technical analysis suggests that downside pressure persists for USD/JPY, but short-term selling could lose momentum, while further downside in USD/CAD may be limited as lingering geopolitical risks keep markets cautious [1][2]. Looking ahead, attention will turn to upcoming economic data and central bank signals, including the Fed’s meeting minutes, US PCE, US CPI, and Canada’s jobs data [2][3].
CONCLUSION
The US-Iran ceasefire has triggered broad US Dollar weakness and improved risk sentiment, but the agreement remains fragile amid ongoing regional instability and unresolved demands. Markets are reassessing central bank policy outlooks, with expectations for rate hikes easing in both the US and UK. Continued geopolitical uncertainty and upcoming economic data will be key drivers for currency and risk asset performance in the near term.