US dollar tumbles as Iran peace deal sparks massive global risk rally

The US dollar lost some of its haven appeal on Monday as investors treated a tentative US-Iran peace framework as a reason to move back into risk assets and reassess the inflation threat from oil.

The dollar index touched its weakest level since June 5 before steadying around 99.55 in Asia.

The euro rose to about $1.1601, sterling advanced to $1.3434, while the Australian and New Zealand dollars also gained as traders unwound part of the safety trade built during the Middle East conflict.

The move was not a full-scale dollar selloff. It was a reset.

Markets still want proof that the Strait of Hormuz can reopen smoothly, that energy flows can normalise and that the unresolved parts of the agreement, including Iran’s nuclear programme, do not derail the truce before it is formally signed in Switzerland.

Safe-haven demand fades

The preliminary deal announced by US and Iranian officials aims to end the war, lift the US blockade of Iranian ports and reopen the Strait of Hormuz, a route central to global oil and gas trade.

That shifted the tone across markets. Brent crude fell more than 4% to near $83 a barrel, cutting the geopolitical premium that had supported the dollar during the conflict.

Lower energy prices also reduced fears that central banks would be forced to keep policy tighter for longer to contain imported inflation.

Risk-linked currencies were the clearest beneficiaries.

The Australian dollar rose 0.6% to $0.7079, while the kiwi gained 0.4% to $0.5854. Both tend to perform better when investors are more comfortable holding cyclical assets.

Yen stays near the danger zone

The yen remained the outlier, weakening to around 160 per dollar, a level that traders see as sensitive for Japanese authorities.

Tokyo has previously pushed back against disorderly currency moves, and the latest weakness keeps intervention risk alive.

The pressure on the yen reflects Japan’s own policy backdrop.

The Bank of Japan is expected to raise rates to 1% this week, but investors are also watching whether it sounds confident enough to keep tightening after the oil shock fades.

Bank decisions set the tone

This week’s run of policy decisions could determine whether the dollar keeps sliding or stabilises.

The Federal Reserve is expected to leave rates unchanged, with investors focused on Chair Kevin Warsh’s first press conference for guidance on inflation and any possible December move.

The Reserve Bank of Australia is also expected to hold at 4.35% after earlier tightening this year.

For now, the dollar’s weakness is built on relief rather than conviction.

A durable reopening of Hormuz would support risk appetite. Any delay or renewed tension could quickly restore demand for havens.