Dollar holds near $99 as eight-week Iran ceasefire steadies FX markets

The dollar held near $99.06 on Tuesday as the US-Iran ceasefire entered its ninth week, reducing safe-haven demand while sticky inflation data kept the Federal Reserve on a higher-for-longer path.

"The ceasefire's durability has allowed currency markets to refocus on rate differentials rather than tail risk, but the April CPI print reminds everyone the Fed isn't cutting soon," said Elena Fischer, geopolitical risk analyst at Edgen.

The dollar index traded at 99.06 after defending the blue rising trendline near 98.92, with the 50-period moving average at 99.18 capping upside. The British pound advanced to $1.3478, bouncing from the 0.382 Fibonacci level at $1.343 within a rising channel, while the euro held $1.1649 after defending the 38.2% retracement at $1.162. April's headline CPI came in at 3.8% and core at 4.1% annually, both exceeding expectations and pushing markets to price out near-term rate cuts under Fed Chair Kevin Warsh.

The ceasefire's survival matters beyond geopolitics: the Strait of Hormuz, through which about a fifth of global oil once flowed, remains a central bargaining chip. Brent crude settled near $95 a barrel Monday after a 4% jump on unconfirmed reports Iran might quit talks. If the truce holds, the dollar's safe-haven premium could erode further, giving the pound and euro room to extend gains. If it fractures, oil above $100 and a renewed dollar bid are the likely scenario.

The ceasefire, which took effect in early April after 38 days of US-Israeli strikes on Iran, has survived despite continued low-level military exchanges. Washington and Tehran have accused each other of violations — the US citing Iranian drone downings, Iran pointing to Israeli operations in Lebanon — but neither side has formally withdrawn from the arrangement. Diplomatic channels remain open, with negotiators discussing a broader framework covering maritime security and economic issues, according to Reuters.

Rate Differentials Drive the Next Move

The dollar's resilience at $99 reflects a market caught between two forces. On one side, the reduced geopolitical risk premium weakens the case for holding the world's reserve currency. On the other, April's hotter-than-expected CPI — headline 3.8% versus 3.4% consensus — has forced markets to realign Fed expectations. Overnight index swaps now price fewer than two quarter-point cuts by year-end, down from four priced in March. The last time the Fed faced a similar inflation overshoot while a ceasefire held was during the 2020 Armenia-Azerbaijan truce, when the dollar traded in a tight 98-100 range for six weeks before breaking lower.

Sterling's advance to $1.3478 has been the cleanest expression of improving risk appetite. The pound has preserved higher lows within a white rising channel since mid-May, with the 50-period moving average at $1.345 providing dynamic support. The relative strength index at 52 leaves room for further upside before reaching overbought territory. A break above $1.350 would open the path toward the May high near $1.355.

The euro's recovery has been more tentative. The single currency defended the $1.162 level — the 38.2% Fibonacci retracement of the April-May rally — but has struggled to clear the 50-period moving average at $1.166. The European Central Bank's more accommodative stance, driven by softer Eurozone growth, has capped euro gains even as the dollar's safe-haven bid fades. The RSI at 48 reflects the pair's neutral posture.

What comes next hinges on the diplomatic calendar. US and Iranian negotiators are expected to resume talks this week, with the Strait of Hormuz reopening as the immediate priority. President Trump said Monday that discussions were continuing "at a rapid pace," though he also toughened the terms of a proposed framework memorandum, according to officials cited by the New York Times. A breakthrough would likely push the dollar below $98.50 and send GBP/USD toward $1.355. A breakdown — whether from a failed negotiation or a new military escalation — would reverse those moves quickly.

This article is for informational purposes only and does not constitute investment advice.