The US Dollar (USD) experienced broad-based weakness on Monday as reports emerged that the United States and Iran have received a proposed framework for a ceasefire, leading to improved market sentiment and a shift toward riskier assets [1][3][4]. The USD/CAD pair depreciated to around 1.3920 during European hours, with the Canadian Dollar (CAD) strengthening as investors responded to the prospects of reduced hostilities in the Middle East [1]. Similarly, the EUR/USD pair traded 0.4% higher near 1.1560, and the US Dollar Index (DXY) fell almost 0.4% to near 99.80, reflecting diminished safe-haven demand for the Greenback [4].
According to reports, the ceasefire proposal involves a two-step plan with an immediate cessation of hostilities, followed by a broader agreement. Pakistan's army chief, Field Marshal Asim Munir, has been in contact with US Vice President JD Vance, special envoy Steve Witkoff, and Iranian Foreign Minister Abbas Araghchi regarding the negotiations [1]. Iran confirmed receipt of the US proposal through Pakistan but clarified that it would not accept the proposal under pressure or deadlines and would not reopen the Strait of Hormuz under a temporary ceasefire arrangement [1][4]. Iranian media also reported plans to impose a toll on tankers exiting the Persian Gulf, which eased fears of an energy shock and its potential inflationary impact [1].
The US Dollar's downside was also evident in the USD/JPY pair, which eased to 159.40 amid hopes of a peace deal in Iran. However, the Yen's appreciation was limited due to Japan's reliance on crude imports and the strain of high oil prices on its economy. The Yen has depreciated nearly 5% since late February, reaching the key 160.00 level last week. Japan’s Finance Minister, Satsuki Katayama, described recent currency moves as 'very speculative' and reiterated Tokyo's readiness to intervene if necessary [3].
Despite the current risk-on sentiment, some analysts remain cautious. MUFG’s Lloyd Chan noted that persistent geopolitical tensions around Iran continue to support USD strength, with elevated US yields and resilient labor data underpinning the Dollar's carry appeal. Chan highlighted that prolonged disruptions to energy flows via the Strait of Hormuz could be particularly damaging for Asia, skewing risks toward a stronger USD in a risk-off environment [2]. US 2-year yields remain above 3.8%, and markets are no longer pricing in rate cuts this year [2].
Looking ahead, investors are awaiting key US economic data, including the ISM Services PMI for March, expected at 55.0, and the Federal Open Market Committee (FOMC) minutes and Consumer Price Index (CPI) data later in the week [4]. These releases could further influence USD direction and market sentiment.
CONCLUSION
Ceasefire talks between the US and Iran have weakened the US Dollar and boosted risk sentiment, benefiting currencies like the Canadian Dollar and Euro. However, analysts caution that ongoing geopolitical risks and elevated US yields could limit further USD downside. Market participants are closely watching upcoming US economic data for additional direction.