The US Dollar Index (DXY) fell about 1% on Wednesday, sliding from near 100.00 to around 98.50 after a US-Iran ceasefire announcement. It later rose back above 99.00 as doubts grew over the truce.
President Donald Trump announced a two-week “double-sided ceasefire” with Iran, brokered by Pakistan and linked to reopening the Strait of Hormuz. After the news, crude oil dropped over 15% and global equities rose.
Ceasefire Doubts And Market Reaction
Iran’s parliamentary speaker Mohammad Bagher Ghalibaf accused the US and Israel of breaching the truce. Israel’s Prime Minister Netanyahu said the ceasefire “does not include Lebanon” and Israel struck Hezbollah targets in Beirut and southern Lebanon.
Iran’s Fars news agency said oil tanker traffic through the Strait of Hormuz stopped again after the strikes. Iran said it would leave the agreement if fighting in Lebanon continued.
FOMC Minutes for 17–18 March showed the fed funds rate was held at 3.50% to 3.75% by an 11 to 1 vote, with Governor Stephen Miran backing a 25 basis point cut. Many policymakers said inflation could stay high and “could call for rate increases”, and options pricing put the chance of hikes through early next year at about 30%.
Core PCE is due Thursday and March CPI on Friday. DXY was at 99.12, below the 200-period EMA at 99.33.
Looking Back At 2025 And The Dollar
Looking back at the events of 2025, we can see the brief collapse of the US-Iran ceasefire was a major turning point for the US Dollar. The DXY’s sharp rebound from the 98.50 level demonstrated how quickly safe-haven demand can return when geopolitical agreements falter. This sensitivity to Mideast tensions remains a critical factor for us to watch today.
The hawkish FOMC minutes from March 2025 were a clear warning that was ultimately realized. The persistent inflation, fueled by the conflict’s impact on oil prices, prevented the Fed from cutting rates and kept the dollar strong throughout the end of 2025. In fact, the most recent CPI report for March 2026 showed core inflation remains sticky at 3.1%, justifying the Fed’s continued cautious stance.
As a result, the DXY never returned to those 2025 lows and has instead established a firm base above the 104.00 level for most of this year. We saw how quickly the market repriced rate cut expectations last year, and this historical price action suggests that any fresh inflation scares will likely support the dollar. This makes shorting the dollar a risky proposition in the current environment.
The market is now pricing in this risk, with implied volatility on major currency options seeing a steady rise since January. One-month implied volatility for EUR/USD, for example, is currently hovering around 8.2%, up significantly from the sub-6% levels we saw late last year. This shows traders are actively hedging against the kind of sudden price swings that last year’s ceasefire news triggered.
Given this backdrop, we should consider strategies that benefit from dollar strength or rising volatility in the coming weeks. Buying call options on the Dollar Index provides a defined-risk way to position for another move higher driven by geopolitical risk or stubborn inflation data. This allows us to capture potential upside while limiting our maximum loss if the dollar weakens unexpectedly.
The link between oil prices and Fed policy, highlighted in the 2025 minutes, is more important than ever. With WTI crude futures currently trading firmly above $88 a barrel, any further supply disruptions could push prices toward $100. Such a move would almost certainly reignite inflation fears, forcing the Fed’s hand and sending the dollar higher.
