Dollar Softens as Ceasefire Relief Eases Safe-Haven Demand

The dollar lost ground after markets finally got something they had been waiting for, a pause in escalation. Trump’s decision to delay threatened strikes on Iranian civilian infrastructure by two weeks, along with his description of the move as a “double-sided ceasefire” linked to reopening the Strait of Hormuz, eased some of the defensive positioning that had supported the dollar in recent weeks.

That shift showed up clearly in the US Dollar Index, which traded at 98.669, down 0.795 points or 0.80%, after slipping towards a four-week low near the 99 area. The move was a logical unwind of part of the rally that had been built on war risk, disruption to oil flows and a market leaning towards a higher-for-longer Fed outlook. Once the threat of immediate escalation was pushed back, part of that premium began to fade.

Even so, the move lower has not changed the broader picture completely. Markets are still watching missile threats, shipping risks and whether the ceasefire can hold for more than a short period. That leaves the dollar softer than before, but not in a position where traders are ready to abandon it entirely.

Oil remains central to that adjustment. The market responded not just to the political headline, but to what it could mean for actual flows through Hormuz, which carries roughly 20% of global oil supply. Following the ceasefire announcement, Brent fell to $94.43 and WTI to $96.82, easing some of the inflation pressure that had been helping the dollar. Still, traders have become more cautious about taking diplomatic language at face value. A temporary easing in shipping risk can reduce panic, but it does not fully remove the premium unless flows remain stable and the broader situation becomes more credible.

The main reason the dollar has not fallen more sharply lies in inflation expectations. In March, one-year US inflation expectations rose to 3.4% from 3.0% in February, while expected gasoline-price inflation jumped to 9.4%, the highest level since the 2022 energy shock. Those numbers suggest the recent move in oil has already filtered into household expectations, even though crude has pulled back from the highs. That leaves the Fed in a more difficult position and makes it harder for markets to rebuild a clear easing story.

For now, the dollar is being pulled in two directions. Relief around Iran has reduced some of the haven demand that drove the earlier rally, but inflation expectations remain high enough to stop the market from turning fully dovish. If the ceasefire holds and inflation data softens, USDX may have room to move lower. If either of those conditions changes, support for the dollar may return quickly.

Explore how ceasefire relief, inflation expectations and the next CPI print could shape the dollar’s next move.