US Dollar Index Erases Annual Gains as Middle East Ceasefire Reprices Energy Risk

The US Dollar Index dropped 1.2% on Wednesday, erasing all of its year-to-date gains. The euro, pound sterling, and yen each rose more than 1% against the dollar during trading. The decline was driven by a two-week ceasefire announced between the US and Iran, which caused Brent crude oil futures to plummet 16%. This retreat in energy prices reduced the US dollar's status as a safe-haven asset and prompted leveraged investors to unwind long dollar positions. The drop in oil prices also reignited market expectations for Federal Reserve interest rate cuts, with current pricing indicating a 33% probability of one rate cut within the year. The US dollar rebounded 0.6% from its daily low after Iran suspended tanker passage through the Strait of Hormuz on the 8th.