Dollar holds gains as Iran truce enters week 8, DXY consolidates

The US Dollar extended its rally as the US-Iran ceasefire entered its eighth week, with DXY consolidating within an ascending channel.

The US Dollar strengthened for an eighth consecutive week as the US-Iran ceasefire held, with the DXY index consolidating within an ascending channel near 104.50 while EUR/USD tested key support and GBP/USD defended its rising channel floor.

"The truce has removed a significant tail risk from currency markets, allowing the dollar to reclaim its safe-haven premium without the volatility premium that defined the early months of the conflict," said Elena Fischer, geopolitical risk analyst at Edgen.

The tentative memorandum of understanding between Washington and Tehran — which would reopen the Strait of Hormuz and begin 60 days of nuclear negotiations — has yet to receive President Donald Trump's sign-off. US Vice President JD Vance said Thursday that "a couple of language points" remain under discussion, while Treasury Secretary Scott Bessent confirmed the deal hinges on "what the president wants to do." Oil prices reflected the uncertainty: gasoline futures rebounded Thursday after new skirmishes near the strait, though the national average at the pump fell 3.3 cents to $4.43 a gallon — the biggest single-day drop since November 2008.

The dollar's trajectory now depends on whether Trump endorses the MOU. If signed, the reopening of the strait — which handles about 21% of global oil trade — could further depress energy costs and reinforce dollar strength by reducing geopolitical risk premiums. If rejected, renewed hostilities risk pushing DXY higher as safe-haven flows return, while EUR/USD and GBP/USD face potential breakdowns below their respective support levels.

The ceasefire's durability has been tested repeatedly. Iran fired a ballistic missile toward Kuwait late Wednesday — intercepted by US forces — which US Central Command called an "egregious ceasefire violation." The IRGC navy also fired warning shots at four vessels near the Strait of Hormuz. Despite these incidents, Vance described the truce as "a little messy" but intact, adding that the US reserves the right to launch defensive strikes.

Oil inventories drain as strait remains constrained

The monthslong closure of the strait has forced the energy industry to drain storage at an accelerating pace. US crude oil and product inventories fell by 17.4 million barrels last week, leaving stockpiles at the lowest seasonal level since May 2003, according to Energy Information Administration data. The Strategic Petroleum Reserve alone declined by 9.1 million barrels, bringing the two-month draw to 50 million barrels. Gasoline inventories fell to their lowest May level since 2014, while diesel and other distillates hit levels not seen since May 2003.

"The situation remains volatile, and markets have been on a roller coaster ride," said Andy Lipow, president of Lipow Oil Associates. "We could get one headline and crude oil would be back up $5 a barrel."

Currency pairs test critical levels

EUR/USD has been testing support near the 1.0800 level as the dollar's strength persists, while GBP/USD has been defending the floor of its rising channel. The divergence reflects relative monetary policy expectations: the European Central Bank has signaled potential easing as the euro-area economy slows, while the Bank of England has maintained a more cautious stance. The DXY's ascending channel — formed since the ceasefire took effect in early April — suggests the dollar's uptrend remains intact as long as the geopolitical backdrop stabilizes.

The last time a comparable geopolitical risk premium compressed this quickly was during the 2020 Armenia-Azerbaijan ceasefire, which saw the dollar index decline 2.3% over the subsequent month as oil prices normalized. A similar outcome this time would depend on full implementation of the MOU, including Iran's agreement to turn over its stockpile of highly enriched uranium.

This article is for informational purposes only and does not constitute investment advice.