With the ceasefire announcement in effect, the US dollar index retreated by nearly 1%, and may subsequently face a two-way tug-of-war.
2026-04-08 19:10:27
As signs of de-escalation emerged in the Middle East geopolitical situation, the recent safe-haven rally in the US dollar reversed. US President Trump officially announced a two-week delay to the planned strikes on Iranian civilian infrastructure, defining the move as a "two-way ceasefire linked to the reopening of the Strait of Hormuz." This statement directly dispelled market concerns about escalating conflict, causing defensive positions that had supported the dollar's strength in recent weeks to loosen, leading to a significant decline in the dollar index.
The US dollar index was at 98.832 during the session, down 0.8213 points, or 0.82%, from the previous trading day; it touched a low of around 99 during the session, just a step away from its lowest point in four weeks.
Market analysts point out that this dollar pullback is a reasonable correction in terms of logic—the dollar's previous rise was mainly driven by three factors: risk aversion due to escalating conflicts in the Middle East, supply concerns due to disruptions in oil transport through the Strait of Hormuz, and market expectations that the Federal Reserve would maintain high interest rates for a longer period. Now that the immediate risk of conflict has been temporarily postponed, the risk premium from this combination is naturally fading.
The oil market becomes a key driver of inflationary pressures; falling oil prices ease inflationary pressures.
The Strait of Hormuz, a vital chokepoint for global energy transport, carries approximately 20% of the world's seaborne oil shipments. Its maritime safety directly impacts international oil prices, which in turn affect the US dollar exchange rate. Following the ceasefire announcement, market panic regarding energy supply disruptions significantly eased, and international oil prices subsequently corrected: Brent crude futures fell to $94.43 per barrel, and US WTI crude futures fell to $96.82 per barrel.
The decline in oil prices has somewhat eased the inflationary pressures that had previously fueled the dollar's strength, but traders remain cautious about current diplomatic statements.
Industry insiders say that while the easing of short-term shipping risks can calm market panic, the geopolitical risk premium in oil prices is difficult to completely eliminate—unless shipping traffic in the Strait of Hormuz remains stable and the geopolitical situation in the Middle East shows substantial and sustainable easing, oil prices may remain at a relatively high level, which also provides implicit support for the US dollar.
High inflation expectations limit downside potential for the dollar.
Despite the waning of risk aversion leading to a weaker dollar, persistently high inflation expectations remain a major obstacle preventing a sharp decline in the currency. Newly released US inflation expectations data show that one-year inflation expectations rose to 3.4% in March from 3.0% in February, with gasoline price inflation expectations surging to 9.4%, the highest level since the 2022 energy crisis.
This data reflects that even though crude oil prices have recently fallen from their peak, the transmission effect of the previous oil price increase has gradually permeated into household inflation expectations.
For the Federal Reserve, high inflation expectations undoubtedly increase the difficulty of policy decisions: if inflation remains sticky, the Fed may be forced to maintain high interest rate policies for a longer period of time, and may even raise interest rates further; this expectation makes it difficult for the market to rebuild a clear logic that "the Fed will soon start cutting interest rates", thus limiting the downside potential of the dollar from the perspective of interest rate differentials.
In addition, the market still needs to pay attention to three major uncertainties: whether the Iranian missile threat will continue, whether the shipping risks in the Strait of Hormuz can be completely eliminated, and whether the ceasefire agreement can break through the "short-term" dilemma. Despite these multiple risks, traders have not completely abandoned their allocation to the US dollar, and the "safety cushion" of safe-haven buying has not completely disappeared.
Market Outlook: The US Dollar Trapped in a Two-Way Tug-of-War
The US dollar is currently in a "two-way tug-of-war" situation: on the one hand, the risk aversion caused by the ceasefire in Iran has subsided, weakening the core driving force behind the dollar's rise; on the other hand, high inflation expectations are enough to prevent the market from turning completely dovish, providing support for the dollar.
Looking ahead, the direction of the US dollar index will largely depend on two key conditions: first, whether the current ceasefire agreement can remain in effect and whether geopolitical conflicts in the Middle East will escalate again; and second, whether subsequent US inflation data (especially the upcoming CPI data) will show a downward trend. If both conditions are met—the ceasefire continues and inflation cools—the US dollar index may see further declines. Conversely, if geopolitical conflicts resume or inflation data exceeds expectations, safe-haven buying of the dollar and interest rate differentials may quickly return, driving the index to rebound again.
The US dollar index was at 98.832 during the session, down 0.8213 points, or 0.82%, from the previous trading day; it touched a low of around 99 during the session, just a step away from its lowest point in four weeks.
Market analysts point out that this dollar pullback is a reasonable correction in terms of logic—the dollar's previous rise was mainly driven by three factors: risk aversion due to escalating conflicts in the Middle East, supply concerns due to disruptions in oil transport through the Strait of Hormuz, and market expectations that the Federal Reserve would maintain high interest rates for a longer period. Now that the immediate risk of conflict has been temporarily postponed, the risk premium from this combination is naturally fading.
The oil market becomes a key driver of inflationary pressures; falling oil prices ease inflationary pressures.
The Strait of Hormuz, a vital chokepoint for global energy transport, carries approximately 20% of the world's seaborne oil shipments. Its maritime safety directly impacts international oil prices, which in turn affect the US dollar exchange rate. Following the ceasefire announcement, market panic regarding energy supply disruptions significantly eased, and international oil prices subsequently corrected: Brent crude futures fell to $94.43 per barrel, and US WTI crude futures fell to $96.82 per barrel.
The decline in oil prices has somewhat eased the inflationary pressures that had previously fueled the dollar's strength, but traders remain cautious about current diplomatic statements.
Industry insiders say that while the easing of short-term shipping risks can calm market panic, the geopolitical risk premium in oil prices is difficult to completely eliminate—unless shipping traffic in the Strait of Hormuz remains stable and the geopolitical situation in the Middle East shows substantial and sustainable easing, oil prices may remain at a relatively high level, which also provides implicit support for the US dollar.
High inflation expectations limit downside potential for the dollar.
Despite the waning of risk aversion leading to a weaker dollar, persistently high inflation expectations remain a major obstacle preventing a sharp decline in the currency. Newly released US inflation expectations data show that one-year inflation expectations rose to 3.4% in March from 3.0% in February, with gasoline price inflation expectations surging to 9.4%, the highest level since the 2022 energy crisis.
This data reflects that even though crude oil prices have recently fallen from their peak, the transmission effect of the previous oil price increase has gradually permeated into household inflation expectations.
For the Federal Reserve, high inflation expectations undoubtedly increase the difficulty of policy decisions: if inflation remains sticky, the Fed may be forced to maintain high interest rate policies for a longer period of time, and may even raise interest rates further; this expectation makes it difficult for the market to rebuild a clear logic that "the Fed will soon start cutting interest rates", thus limiting the downside potential of the dollar from the perspective of interest rate differentials.
In addition, the market still needs to pay attention to three major uncertainties: whether the Iranian missile threat will continue, whether the shipping risks in the Strait of Hormuz can be completely eliminated, and whether the ceasefire agreement can break through the "short-term" dilemma. Despite these multiple risks, traders have not completely abandoned their allocation to the US dollar, and the "safety cushion" of safe-haven buying has not completely disappeared.
Market Outlook: The US Dollar Trapped in a Two-Way Tug-of-War
The US dollar is currently in a "two-way tug-of-war" situation: on the one hand, the risk aversion caused by the ceasefire in Iran has subsided, weakening the core driving force behind the dollar's rise; on the other hand, high inflation expectations are enough to prevent the market from turning completely dovish, providing support for the dollar.
Looking ahead, the direction of the US dollar index will largely depend on two key conditions: first, whether the current ceasefire agreement can remain in effect and whether geopolitical conflicts in the Middle East will escalate again; and second, whether subsequent US inflation data (especially the upcoming CPI data) will show a downward trend. If both conditions are met—the ceasefire continues and inflation cools—the US dollar index may see further declines. Conversely, if geopolitical conflicts resume or inflation data exceeds expectations, safe-haven buying of the dollar and interest rate differentials may quickly return, driving the index to rebound again.
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