Dollar dips as Trump-brokered Israel–Iran ceasefire triggers global risk rally

The US dollar weakened on Tuesday as global markets staged a risk rally following US President Donald Trump’s announcement of a ceasefire between Israel and Iran, easing fears of a broader West Asia conflict.

As per Reuters, the risk-sensitive Australian and New Zealand dollars climbed after the news, with the Australian dollar rising 0.35 per cent to $0.6483 and the New Zealand dollar up 0.37 per cent to $0.5998. The dollar, which had benefited from safe-haven flows during the 12-day conflict, fell broadly after Trump said a “complete and total” ceasefire would go into effect. The announcement came just hours after both Iran and Israel had escalated threats of new attacks.

West Asia de-escalation lifts risk sentiment

On Monday, US President Donald Trump said that a "complete and total" ceasefire between Israel and Iran will go into force with a view to ending the conflict between the two nations.

"On the assumption that everything works as it should, which it will, I would like to congratulate both Countries, Israel and Iran, on having the Stamina, Courage, and Intelligence to end, what should be called, 'THE 12-DAY WAR'," Trump wrote on his Truth Social site.

The greenback fell 0.21 per cent to 145.79 against the Japanese yen. The euro edged up 0.21 per cent to $1.1602, while the British pound climbed 0.18 per cent to $1.3551.

Rodrigo Catril, senior currency strategist at National Australia Bank, told Reuters, “It’s obviously positive news for risk sentiment. We need to have a bit more detail in terms of exactly what all this means and the conditions for a more long-lasting peace.”

The ceasefire news followed an Iranian missile attack on a US air base in Qatar, which reportedly caused no casualties. Trump dismissed the strike as a “weak response” to earlier US attacks on Iranian nuclear infrastructure.

Fed rate cut expectations add pressure on dollar

As per Reuters, the dollar also faced additional headwinds from dovish comments by Federal Reserve Governor Michelle Bowman, who suggested the US central bank should consider cutting interest rates soon. Her comments were echoed by Fed Governor Christopher Waller, who recently indicated support for a rate cut at the Fed’s upcoming meeting in July.

Tony Sycamore, a market analyst at IG, said there was growing divergence among Fed officials, adding, “The chance of a July rate cut is still underpriced. I think it should be higher than that.” According to CME’s FedWatch tool, the probability of a July rate cut rose to 20 per cent on Tuesday, up from 14.5 per cent a day earlier.

All eyes are now on US Fed Chair Jerome Powell, who is scheduled to testify before Congress on Tuesday and Wednesday. Markets will closely watch his remarks for clues on the future path of US monetary policy.

(With inputs from the agencies)