The dollar weakened on Tuesday after the announcement of a ceasefire between Israel and Iran and as investors awaited comments from Federal Reserve Chair Jerome Powell in his testimony to Congress.
The euro and Japanese yen strengthened, helped by falling oil prices. Lower energy prices tend to benefit regions like the European Union and Japan, which are major importers of oil and gas. The U.S., by contrast, is a net exporter.
Risk-sensitive currencies, including the Australian dollar, also gained as the ceasefire improved overall market sentiment.
The dollar had initially gained on Monday due to concerns that U.S. strikes on Iranian nuclear sites would escalate the conflict. But the greenback fell back after explosions were heard in Tehran despite the ceasefire, adding to uncertainty.
Federal Reserve policy also weighed on the dollar. Fed Vice Chair for Supervision Michelle Bowman said on Monday that the time to cut interest rates could be near, citing labour market risks. Her comments followed those of Fed Governor Christopher Waller on Friday, who said the Fed should consider rate cuts at its next meeting due to weak inflation and limited risk from import tariffs.
These remarks shifted focus to Powell’s congressional testimony. In prepared comments, Powell said the Fed would need more time to assess whether rising tariffs could lead to inflation before making decisions on rate cuts.
President Donald Trump repeated his call for interest rates to be lowered by two to three percentage points. Traders in futures markets now expect 55 basis points of cuts this year, up from 46 basis points before Waller’s remarks.
A rate cut at the Fed’s July meeting is seen as unlikely, with the first cut expected in September.
The dollar index fell 0.11% to 98.13. The euro rose 0.1% to $1.1588, and the yen gained 0.72% to 145.13 per dollar.
In cryptocurrency markets, bitcoin rose 1.37% to $105,221.
