A dramatic US-Iran ceasefire agreement, brokered by Pakistan's Prime Minister Shehbaz Sharif and confirmed by President Donald Trump, triggered a sharp selloff in the US Dollar across global FX markets this week [2]. The ceasefire, announced just hours before Trump's deadline for Iran to reopen the Strait of Hormuz, was based on Iran's 10-point proposal and sent the Bloomberg Dollar Spot Index tumbling by as much as 1.1% on Wednesday, marking its steepest single-day decline since January [2]. The Greenback fell against all 16 major peers, with risk-sensitive currencies like the Australian Dollar (AUD) and Canadian Dollar (CAD) catching strong bids as traders unwound defensive positions [1][2].
AUD/USD extended gains for a fourth consecutive day, trading near three-week highs at 0.7087 on Thursday, supported by both the US Dollar's weakness and a hawkish Reserve Bank of Australia outlook [1]. USD/CAD dropped nearly a full percent since the start of the week, sliding from the 1.3965 area to around 1.3800, with the move amplified by a 10% intraday plunge in WTI Oil prices as the prospect of Hormuz reopening eased commodity-driven inflation fears [2]. GBP/USD advanced past 1.3400, trading at 1.3441, up 0.36%, as Sterling benefited from improved risk appetite and expectations of further Bank of England rate hikes [3].
However, optimism around the ceasefire proved short-lived. Iran accused the US of violating three parts of the agreement following Israeli strikes on Lebanon, raising doubts about the truce's durability [1][2][3]. Israel intensified its attacks on Lebanon, reportedly killing more than 250 people, and Tehran demanded that the ceasefire deal include Lebanon before reopening the Strait of Hormuz [3]. The broader market mood remains cautious, with risk appetite tempered by ongoing geopolitical tensions [1][3].
US economic data released this week showed mixed signals. Core Personal Consumption Expenditures (PCE) inflation rose by 0.4% MoM in February, in line with expectations, while the annual rate eased to 3.0% from 3.1% [1][3]. The final Q4 GDP growth was revised lower to 0.5% from 0.7% [1]. Initial Jobless Claims for the week ending April 4 increased to 219K, above forecasts, but Continuing Claims fell to 1.794K, the lowest since May 2024 [3]. Traders now await the US Consumer Price Index (CPI) report for March, projected to show headline inflation rising from 2.4% to 3.3% and core CPI from 2.5% to 2.7% [1][3].
Federal Reserve (Fed) expectations shifted notably after the ceasefire. Prior to the agreement, markets had priced out any chance of a rate cut, but with Oil prices dropping below $100 and inflationary risks receding, rate futures began pricing at least one cut into the 2026 curve [2]. Minutes from the Fed's March meeting revealed policymakers were split: some saw a hike as necessary if Oil prices rose, while others expected a cut this year, especially if Middle East conflict weakened labor market conditions [1][2]. Money markets estimated six basis points of easing by year-end [3]. In the UK, markets expect the Bank of England to hike rates at the June 18 meeting, with a 21% chance of a hike on April 30 and 39 basis points of tightening expected for the year [3].
Technical analysis across FX pairs shows the US Dollar under pressure, with AUD/USD and GBP/USD near multi-week highs and USD/CAD breaking below key support levels. However, Thursday's price action suggests the initial selling impulse may be losing momentum, and the fragile nature of the ceasefire means volatility could persist [1][2][3].
CONCLUSION
The US-Iran ceasefire triggered a broad selloff in the US Dollar and boosted risk-sensitive currencies, but escalating tensions and violations have cast doubt on the truce's longevity. Market sentiment remains cautiously optimistic, with traders closely watching upcoming US inflation data and central bank policy signals. The fragile geopolitical backdrop suggests continued volatility in FX markets.