The USD Index (USDIDX) fell 0.5% as the reopening of the Strait of Hormuz coincided with a peace plan announcement between Iran and the USA, triggering a sell-off in the dollar. This development marks the USDIDX’s lowest level in over a month, as bearish momentum is confirmed by technical indicators. The decline in oil prices further pressured the dollar, which had previously gained from geopolitical tensions.

Meanwhile, the EURUSD surged to two-month highs, breaking above 1.18. The market quickly shifted from concerns about euro-dollar parity amid the conflict to a more optimistic outlook, as investors priced in a return to normalcy. The options market showed a significant rebound in the Risk Reversal indicator, indicating reduced hedging against EURUSD declines.

As central banks prepare to take center stage, the easing geopolitical risks suggest a shift in focus back to monetary policy. With the ECB potentially remaining more hawkish than the Fed, the dollar may face continued downward pressure, while the euro could benefit from a more favorable interest rate outlook.

Source: xtb.com