Dollar slumps in broad risk rally after Trump announces Israel-Iran ceasefire

The U.S. dollar fell on Tuesday while its Australian and New Zealand counterparts rose after President Donald Trump announced a ceasefire between Israel and Iran, in news that sent investors cheering and sparked a risk rally across markets, Reuters reported.

Trump announced a complete ceasefire between Israel and Iran, potentially ending the 12-day conflict that led millions of people to flee Tehran and prompted fears of further escalation in the war-torn region.

But there was no confirmation from Israel, and the Israeli military said Iran launched waves of missiles on Tuesday just hours after the announcement. Trump later said the ceasefire “is now in effect” and urged both countries to not violate it.

The risk-sensitive Aussie got a lift and last traded 0.5% higher at $0.6493 as did the kiwi, which rose 0.55% to $0.6009.

Israel’s shekel rallied sharply too, jumping 1% against the dollar to its strongest level since February 2023.

“It’s obviously positive news for risk sentiment,” said Rodrigo Catril, senior currency strategist at National Australia Bank, of the announced ceasefire.

“We need to obviously have a bit more detail in terms of exactly what all this means… I suppose it will be the conditions of the ceasefire, and what are the conditions for a more longer-lasting peace deal.”

The dollar, which last week drew support from safe-haven demand, fell broadly in the wake of the news.

Against the yen, the greenback was down 0.47% at 145.45.

The euro rose 0.23% to $1.1605 and sterling advanced 0.27% to $1.3564.

The yen and euro benefited from a slide in oil prices as both the EU and Japan rely heavily on imports of oil and liquefied natural gas, while the United States is a net exporter.

Adding to headwinds for the dollar were dovish comments from Federal Reserve policymaker Michelle Bowman, who said the U.S. central bank should consider interest rate cuts soon.

Bowman’s openness to cutting rates soon is supported by Fed Governor Christopher Waller, who said in a television interview last week that he would also consider a rate cut at next month’s meeting.

Against a basket of currencies, the dollar was slightly lower at 98.12, extending its more than 0.5% decline in the previous session.

Fed Chair Jerome Powell is due to testify before the U.S. Congress on Tuesday and Wednesday, where focus will be on the outlook for U.S. rates.

“There appears to be increasing division among the ranks of the Fed board ahead of Fed Chair Powell’s testimony,” said Tony Sycamore, a market analyst at IG.

“The chance of a July rate cut… is still underpriced. I think it should be higher than that.”

Markets are now pricing in close to a 23% chance the Fed could ease rates in July, up from 14.5% a day ago, according to the CME FedWatch tool.

In cryptocurrencies, bitcoin rose more than 1% to $105,155.52, while ether jumped 2.7% to $2,412.54, in a reflection of the positive risk sentiment.