A major geopolitical breakthrough occurred as US President Donald Trump announced a two-week ceasefire with Iran, suspending planned military strikes in exchange for Tehran reopening the critical Strait of Hormuz for safe passage, as confirmed by both US and Iranian officials late Tuesday [1][2][3][4][5][6]. Trump stated, 'I agree to suspend the bombing and attack of Iran for a period of two weeks,' contingent on Iran's compliance, and referenced a 10-point proposal from Iran as a workable basis for negotiation [1][2][6]. Iran’s Foreign Minister Abbas Araghchi confirmed safe passage through the Strait would be possible for two weeks via coordination with Iranian armed forces [1][4][5][6]. Negotiations are set to begin Friday in Islamabad, Pakistan, with the possibility of extension if both sides agree [1][3][4][5][6]. Pakistan played a mediating role in securing the pause [6].
The ceasefire triggered immediate market reactions: the US Dollar Index (DXY) tumbled to near 99.05, a one-month low, as investors shifted to risk-on sentiment, undermining the USD's safe-haven status [1][2][4][5][6]. USD/CHF dropped to a two-week low around 0.7900, and NZD/USD rose to near 0.5800, marking its third consecutive day of gains [2][3]. The USD weakened against all major currencies, with the largest declines against AUD (-1.14%), NZD (-1.00%), and CHF (-0.83%) [2]. USD/CAD fell to around 1.3835, reflecting CAD strength, though lower crude oil prices—falling below $100—could weigh on the commodity-linked Loonie [4]. Silver (XAG/USD) rallied to a fresh weekly high above $77.00, benefiting from the USD selloff and easing inflation concerns as oil prices plunged [5]. US stock futures surged, reflecting broad market optimism [6].
The ceasefire also led to a steep decline in crude oil prices, easing inflationary concerns and tempering Federal Reserve (Fed) rate hike bets, as evidenced by declining US Treasury yields [2][4][5][6]. Overnight-indexed swaps signaled about a 40% probability of a Fed rate cut by year-end, according to CME FedWatch [1]. Traders are awaiting the Federal Open Market Committee (FOMC) Minutes for further cues on Fed officials' views regarding the recent energy shock caused by Middle East conflicts [1][4]. The Reserve Bank of New Zealand (RBNZ) is expected to extend its pause on rate cuts, leaving the Official Cash Rate at 2.25%, as the Iran war adds uncertainty to the economic and inflation outlook [3].
Despite the ceasefire, reports indicate that Iranian attacks continue in the Middle East and on Israel, with missile alerts sounding and the Israeli military confirming missiles launched from Iran towards Israel. The Qatar Defence Ministry also confirmed interception of a missile attack targeting Qatar [2][3]. These ongoing hostilities have limited further losses for the USD and tempered risk-on sentiment [2][3].
Forward-looking statements from analysts and central banks highlight continued uncertainty. Any hawkish remarks from Fed officials could support the USD in the near term [1][4]. RBNZ Governor Dr. Anna Breman will address the post-monetary policy meeting press conference, with attention on the Monetary Policy Review and meeting minutes [3].
CONCLUSION
The US-Iran ceasefire has triggered a broad-based selloff in the US Dollar, a rally in risk assets, and a sharp decline in oil prices, easing inflation concerns and tempering Fed rate hike expectations. While markets have responded positively, ongoing regional hostilities and upcoming central bank communications may influence future volatility. Investors remain focused on negotiations in Islamabad and central bank policy signals for further direction.