FX.co ★ Dollar Retreats on Iran Deal Optimism

The dollar index edged down toward 99 on Monday, retreating from six-week highs as rising optimism over a possible US–Iran agreement that could reopen the Strait of Hormuz eased fears about inflation and further interest rate increases.

President Donald Trump nevertheless stated that Washington would maintain its blockade of the strait until a formal deal is finalized, emphasizing that he would not “rush” into an agreement.

The dollar had touched a six-week peak last week as investors increasingly wagered that the Federal Reserve might have to tighten monetary policy to rein in inflation, with markets fully pricing in a rate hike by year-end. However, renewed hopes for a US–Iran accord and a potential reopening of the Strait of Hormuz have pushed oil prices lower, tempering inflation concerns.

Investors are now looking ahead to upcoming PCE inflation data for further signals on the Fed’s policy trajectory. Trading volumes are expected to remain light, with US markets closed for a public holiday.