Dollar Slips Amid Middle East Ceasefire Optimism; Euro Hits Highest Level Since 2021
By Karen Brettell, Reuters
June 24, 2025
The US dollar weakened sharply on Tuesday as optimism over a newly announced ceasefire between Iran and Israel lifted risk sentiment in global markets. Meanwhile, the euro surged to its highest point since October 2021, supported by falling oil prices and renewed investor confidence.
Middle East Ceasefire Boosts Market Mood
The ceasefire agreement, largely facilitated under pressure from US President Donald Trump, marked a significant de-escalation in the long-standing conflict between Iran and Israel, the largest military confrontation between the two nations to date. As the truce began to take effect, markets moved to unwind previous risk-averse positions linked to geopolitical tensions.
“The market right now is unwinding the Middle East trade,” commented Adam Button, chief currency analyst at ForexLive in Toronto. He noted that the easing of conflict fears encouraged investors to shift away from traditional safe havens such as the dollar and yen toward risk-sensitive assets.
Euro and Yen Climb as Oil Prices Fall
The euro responded positively, rising 0.38% to $1.162 after briefly touching $1.1641—the highest level since late 2021. Declining oil prices played a key role in supporting the euro and the Japanese yen, which gained 1% against the dollar, closing at 144.68 yen.
This movement reflected the heavy reliance of the European Union and Japan on imported oil and liquefied natural gas. Lower energy costs reduce economic pressure on these regions compared to the United States, which is a net exporter of energy resources.
Other risk-sensitive currencies also advanced. The Australian dollar strengthened 0.68% against the greenback to $0.6503. The British pound gained 0.77%, reaching $1.3626 and rising as high as $1.3648, marking its strongest level since January 2022. ### Federal Reserve Chair Powell Signals Inflation Concerns
Despite the dollar’s slide, Federal Reserve Chair Jerome Powell maintained a cautious stance in Congress regarding interest rates and inflation. He reiterated expectations that inflation would begin to rise during the summer but said the Federal Reserve was in no hurry to ease borrowing costs.
Powell’s remarks followed comments from Fed policymakers Michelle Bowman and Christopher Waller, who have recently voiced support for near-term interest rate cuts due to signs of labor market softness and subdued inflation expectations.
“The market was looking for a strong pushback regarding the possibility of a rate cut, but Powell continues to sit on the fence,” Button observed. He added that the Fed remains divided, with some officials pointing to potential weakness in jobs while Powell emphasized no signs of labor market deterioration.
In line with this uncertainty, U.S. President Donald Trump called for interest rates to be lowered by at least two to three percentage points to spur economic growth.
Market Expectations on Interest Rate Policy
Futures markets have increased the probability of rate cuts this year, currently pricing in 60 basis points of reductions compared to 46 basis points prior to Waller’s recent comments. This suggests that two 25-basis-point cuts are widely expected, alongside a rising likelihood of a third cut later in the year.
However, an interest rate cut at the Fed’s upcoming July 29-30 meeting remains unlikely, with the first reduction anticipated in September.
According to Vassili Serebriakov, FX strategist at UBS in New York, a faster-than-expected Fed easing could weigh heavily on the dollar. Conversely, if the Fed delays cuts or limits reductions to two this year, dollar weakness may be limited, especially in pairs like dollar/yen, as the currency still benefits from positive carry.
Mixed US Economic Data Adds to Uncertainty
Adding to the cautious tone, data released on Tuesday showed an unexpected decline in U.S. consumer confidence for June. Households expressed worries over business conditions and employment prospects in the coming six months, reinforcing concerns about economic growth.
Meanwhile, in the cryptocurrency sector, bitcoin gained 1.72% to reach $105,589, reflecting broader market optimism.
The evolving geopolitical landscape combined with shifting monetary policy expectations continues to reshape currency markets, with traders and investors closely monitoring developments in the Middle East and the U.S. economy.
Reporting by Karen Brettell; Additional reporting by Stefano Rebaudo; Editing by Deepa Babington
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