Dollar tumbles as Iran ceasefire crushes oil premium

The dollar-yen pair reversed sharply on Tuesday, touching a session high around 160.50 before collapsing below 159.00 to settle near 158.85. USDJPY had briefly breached 160.00 for the first time since July 2024, a level that previously triggered direct intervention from Japan’s Ministry of Finance, before the late-session reversal erased the entire day’s gains and then some. The selloff accelerated after President Trump announced a two-week suspension of military operations against Iran, crushing the US dollar’s safe-haven bid. West Texas Intermediate – the benchmark US crude oil price – plummeted to a nearly two-week trough during the Asian session on Wednesday in reaction to news that the US and Iran have agreed to a two-week ceasefire. The commodity, however, trims a part of heavy intraday losses and currently trades around mid-$90.00s, still down over 10% for the day. On the Yen side, the collapse in WTI crude oil from above $106 to below $90 per barrel is a significant relief for Japan as a major net energy importer. Elevated oil costs had been feeding through to producer and consumer prices, complicating the Bank of Japan’s rate path. The plunge may ease some of that imported inflation pressure, though it also strengthens the case for a rate hike by reducing the risk that tighter policy tips the economy into recession. February household spending fell 1.8% YoY, significantly worse than the 0.7% decline consensus, suggesting consumer demand remains fragile even before the full impact of higher energy costs. Markets continue to price in roughly a 70% probability of a BoJ rate hike later this month. Finance Minister Katayama flagged rising speculative activity in currency markets last week, and Prime Minister Takaichi said she would pursue direct talks with both Iran’s leadership and President Trump. Thursday’s Japanese Producer Price Index (PPI) data could further inform the BoJ’s calculus ahead of the April 28 meeting. On the US Dollar side, S&P 500 futures surged 1.1% and Nasdaq futures jumped 1.2% on the ceasefire confirmation, pulling capital out of the dollar and into risk assets. The pause was brokered by Pakistan’s Prime Minister, with Trump describing a 10-point Iranian proposal as a “workable basis” for negotiation, though Tehran had publicly rejected a 45-day ceasefire just hours earlier. This was Trump’s fourth deadline extension since the conflict began in late February, and traders had been positioning for exactly this outcome throughout the session. February Durable Goods Orders missed at negative 1.4%, though the ex-transportation reading was firmer at 0.8%. The Federal Open Market Committee (FOMC) Minutes are due Wednesday, alongside speeches from Federal Reserve officials Daly and Waller. The key question now is whether physical shipping traffic actually resumes through the Strait of Hormuz; without that, the crude oil premium will rebuild and the dollar’s safe-haven bid will return. (Source: OANDA) The post Dollar tumbles as Iran ceasefire crushes oil premium appeared first on Financial Mirror.