Dollar extends slide, stocks rally as ceasefire optimism persists

Trump says more US-Iran talks could be happening soon

The US dollar continued sliding on Tuesday, losing ground against all its major peers as hopes for further progress in US-Iran truce talks allowed investors to increase their risk exposure, despite the ongoing blockade by the US of ships and vessels entering and leaving Iranian ports.

Market optimism was further bolstered yesterday after US President Trump told the New York Post that more peace talks “could be happening over the next two days.” Reuters also reported that there has been some forward motion towards a permanent deal by both nations.

Still, the blockade of Iranian ports is making things somewhat more complicated. The move took effect on Monday after weekend negotiations failed to lead to a permanent deal, and it threatens to further weigh on already restricted oil flows through the Strait of Hormuz if the two nations cannot find common ground. Maybe that’s why dollar sellers are taking a breather today.

Cooler-than-expected PPI data weigh on US dollar

What may have also helped in driving the greenback lower yesterday was the cooler-than-expected US PPI figures. Although the headline rate jumped to 4.0% y/y from 3.4% due to the surge in oil prices, it fell short of matching expectations of a bigger increase to 4.6%, while the core rate held steady at 3.8% y/y instead of rising to 4.2%.

Combined with comments from former Treasury Secretary Janet Yellen, who said that she expects at least one rate cut by the Fed this year, this allowed traders to assign a decent 45% chance of a quarter-point rate cut by December. Such a move is nearly fully priced in by July 2027. A permanent truce in the Middle East could make it even more likely for the Fed to cut interest rates much sooner, thereby pushing the US dollar even lower.

Yen gains against dollar, but suffers against other currencies

The yen also managed to gain some ground against the greenback yesterday, although it remained on the back foot against the other major currencies. The slide in dollar/yen may have somewhat eased concerns about imminent intervention by Japanese authorities, but yen sellers remained active in other pairs, perhaps as the prospect of truce in the Middle East lessened the probability of a rate hike by the Bank of Japan at its upcoming gathering on April 28. Indeed, from around 60% a couple of weeks ago, the probability of a 25bps rate increase later this month now rests at around 27%.

A Bloomberg report revealed that BoJ policymakers will consider raising their inflation forecasts at their next policy meeting according to sources, mainly to reflect elevated oil prices, but the same sources added that officials will probably also consider revising lower their economic growth projections amid the uncertainty surrounding the conflict in the Middle East. That’s maybe why yen traders were not impressed enough by the report to raise again the chance of an April rate hike.

Stocks and gold fueled by truce hopes and Fed cut bets

On Wall Street, all three of its major indices closed in the green again, with the tech-heavy Nasdaq gaining the most, nearly 2%, and the S&P 500 closing the distance from its record high to less than 1%. Increasing Fed rate cut bets and hopes that the US and Iran will eventually agree on a permanent truce are helping risk-linked stocks and more headlines suggesting that the two nations are getting closer to seal a deal are likely to push equity indices higher.

Gold also moved higher yesterday, gaining around 2%. However, the metal is slightly pulling back today, reflecting the pause in the dollar’s slide and the mixed performance of stock futures today. Perhaps market participants are waiting for fresh headlines before they decide where to push prices next.