U.S. dollar eases amid boost to risk sentiment as Iran and Israel halt strikes

The U.S. dollar was marginally weaker on Monday, as risk sentiment outweighed safe haven demand after Iran and Israel halted strikes against each other following an appeal for calm from President Donald Trump.

It is also a big week for currency market participants as key U.S. consumer and producer inflation data will arrive, potentially impacting central bank interest rate actions.

At 15:48 ET (19:48 GMT), the U.S. dollar index, which tracks the greenback against a basket of currency peers, was down 0.1% to 100.00.

More cues on monetary policy eyed after blowout jobs report 

The dollar index is coming off its best weekly advance since mid-March. A majority of that climb was driven by traders on Friday raising their expectations for Federal Reserve interest rate hikes after the May U.S. nonfarm payrolls report smashed past expectations.

The data, coming on the heels of other positive indicators on the labor market earlier in the week, suggested that the maximum employment part of the Fed’s dual mandate was under control and that the inflationary side was undoubtedly a bigger concern.

"Until Friday, traders were willing to enjoy the promise of strong growth but without the prospect of (much) higher real interest rates. After Friday, the market’s growth-driven narrative may have given way to a real rates driven narrative. In that new narrative, ’good’ economic news may drive real interest rates higher, and be an impediment to high stock market multiples," Thierry Wizman, global FX and rates strategist at Macquarie, said.

"As we’ve noted last week, the U.S.’s tight output gap and its sticky-high inflation were already calling for higher policy interest rates, according to various calibrations of the Taylor Rule. We’ve used this to build a case for the USD staying strong as the FOMC changes the policy bias toward ’tightening’ in June, and so long as crude oil price stay high," Wizman added.

A clearer picture of the impact of surging oil prices on Americans will come this week in the form of the U.S. consumer price index and producer price index reports due on Wednesday and Thursday, respectively. If the readings come in hotter than anticipated, odds of Fed interest rate hikes could get another boost. Higher rate environments generally tend to strengthen the dollar.

Iran, Israel halt strikes on each other after Trump appeal 

Turning to the Middle East, over the weekend there was a rapid rise in tensions after Iran and Israel attacked each other with strikes for the first time since a shaky ceasefire between all warring parties took effect in April.

Media reports said the latest exchange began with an Israeli strike on the Lebanese capital of Beirut. Israel had been fighting Iran-backed Hezbollah militants in Lebanon, although the conflict had not escalated beyond low-key skirmishes until this weekend. Tehran then responded with attacks of its own, sparking a retaliation from Israel that its military says hit targets in central and western Iran.

President Trump took to his Truth Social service to publicly try and defuse the situation, calling upon Israel and Iran to stop "shooting" and asserting that both sides were "looking to do an immediate CEASEFIRE!"

"Final negotiations on ’Peace’ are proceeding, subject to ignorance or stupidity getting in its way. The Blockade will remain in place, and in full force and effect, until a ’Final Deal’ is reached. Things should move quickly," the president said, suggesting that the fresh strikes would not impact his administration’s effort to forge a peace deal with Iran.

The mood quickly improved, however, after Iran’s state media said Iran’s armed forces had announced the end of military operations against Israel. Meanwhile, Israeli Prime Minister Benjamin Netanyahu in a televised statement said that Israel will halt its attacks on Iran "for now," vowing to respond with "great force" if Tehran attacks the Jewish state again. 

Yen firms even as Japan GDP growth revised lower

Looking at other major currencies, the Japanese yen strengthened slightly against the dollar on Monday, but remained above 160, a key level that has previously sparked currency intervention measures by Tokyo. 

Earlier, Cabinet Office data showed Japan’s Q1 2026 gross domestic product (GDP) rose at an annual pace of 1.8%, worse than the prior estimate of 2.1% but better than the consensus estimate of an increase of 1.3%. 

"The preliminary GDP print estimated that business investment had grown 0.3% q/q, but the revision points to a 0.7% decline," José Torres, senior economist at Interactive Brokers, said.