The euro surged more than 1.2 percent against the dollar to trade above 1.1650, a three-week high, after U.S. President Donald Trump announced an agreement for a two-week ceasefire with Iran, dialing back tensions in the Middle East that had bolstered the greenback.
"The ceasefire news triggered a classic risk-on reaction, with capital flowing out of safe-haven assets like the U.S. dollar and into currencies like the euro," said Michael Koehler, a currency strategist at Commerzbank, in a note to clients. "The key question now is whether this truce can translate into a more durable diplomatic off-ramp."
The sudden de-escalation came just hours before a deadline set by President Trump for Iran to reopen the Strait of Hormuz. The agreement, mediated by Pakistan, involves a pause in U.S. and Israeli military action in exchange for Iran allowing passage for oil and gas shipments. The two-week period is intended to facilitate negotiations for a broader, more permanent peace agreement.
A sustained easing of geopolitical tensions could remove a significant pillar of support for the dollar, which has benefited from a flight to safety amid the six-week conflict. The war has disrupted global trade, sending oil prices soaring and increasing the odds of a global economic slowdown. Market focus will now shift to the upcoming negotiations in Islamabad and whether the ceasefire holds.
The conflict has seen more than 5,000 fatalities and widespread damage to infrastructure in Iran and neighboring countries. The U.S. had threatened to destroy key Iranian infrastructure, including bridges and power plants, while Iran had responded with attacks on shipping and energy facilities in the Gulf.
The euro's advance also reflects a broader shift in market sentiment, with equity markets in Europe and the U.S. posting strong gains. The Stoxx Europe 600 Index rose 1.5 percent, while S&P 500 futures pointed to a higher open on Wall Street.
This article is for informational purposes only and does not constitute investment advice.
