Dollar Index Shows Mixed Movement as Markets Weigh US-Iran Peace Deal Prospects

On Friday, the dollar index (DXY) experienced mixed trading, finding support from an increase in US Treasury bond yields while simultaneously facing downward pressure from diminished safe-haven demand due to expectations of a nearing peace agreement between the United States and Iran. Markets largely focused on the potential end to military hostilities in the Middle East and the reopening of the Strait of Hormuz.

The yield on the US 10-year Treasury note rose by 2.2 basis points on Friday, providing support for the dollar's interest rate differentials. However, statements from US President Donald Trump suggesting a US-Iran peace deal could be signed as early as this weekend exerted downward pressure on the dollar by reducing its appeal as a safe-haven asset. Reports indicated that this agreement aims to conclude military conflicts, reopen the Strait of Hormuz, and lift the US blockade on Iran and its oil exports. The draft terms reportedly include the US releasing billions of dollars in frozen Iranian assets and waiving sanctions on its oil exports.

These developments led to sharp declines in crude oil prices. Brent crude, the international benchmark, fell to around $87 per barrel, while US West Texas Intermediate (WTI) dropped below $85. The decrease in oil prices alleviated concerns about persistent inflation and influenced expectations regarding the Federal Reserve's (Fed) need for interest rate hikes. Although the dollar index rose to around 99.8 during the day, it retained most of its losses from the previous session, trading around 99.73.

The Strait of Hormuz, a crucial maritime bottleneck in the global energy system, had been effectively closed since early 2026, causing significant shocks to oil markets and supply chains. This situation had driven global Brent crude prices to as high as $125 per barrel in April 2026. A potential agreement to reopen the strait is therefore highly significant for normalizing global oil flows and easing inflationary pressures.

Market analysts suggest that optimism surrounding the US-Iran deal could continue to pressure the dollar. Analysts from ING noted that energy supply losses and inflation risks will persist unless oil flows freely through the Strait of Hormuz. Nevertheless, the expectation that the Fed will continue its tightening policies might prevent the dollar from experiencing a deeper sell-off. The upcoming Federal Open Market Committee (FOMC) meeting, with a new statement and forecasts, is anticipated to be supportive of the dollar.