The United States Dollar Index (DXY) falls toward the 99.00 level amid hopes for peace in the Middle East.

• The US Dollar Index (DXY) is trading near the lower end of last week’s range at around 99.00.
• Optimism surrounding a potential peace agreement with Iran is reducing demand for the safe-haven Greenback.
• However, expectations of further Federal Reserve tightening are helping limit the USD’s downside pressure.

The US Dollar (USD) opened Monday’s session with a bearish gap, slipping from the 99.30 region — the bottom of last week’s trading range — toward 99.00. Although the US Dollar Index (DXY) remains supported above previous highs, improving sentiment over a possible US-Iran peace agreement and the potential reopening of the Strait of Hormuz are weakening demand for the safe-haven Greenback.

Investor confidence improved after US President Donald Trump suggested that a deal with Tehran may be near, encouraging a moderate risk-on mood in markets. However, Trump maintained a cautious stance, saying he had advised negotiators “not to rush into a deal” and warning that the US would continue blocking the Strait of Hormuz until an agreement is finalized.

Earlier in the day, US Secretary of State Marco Rubio stated that a “fairly strong proposal” to reopen Hormuz is currently under discussion, adding that diplomacy would be fully explored before alternative measures are considered.

Market activity is expected to remain subdued on Monday due to the US Memorial Day holiday closure. Investors are now turning their attention to Thursday’s release of the US Personal Consumption Expenditures (PCE) Price Index, a key inflation gauge closely watched by the Federal Reserve.

Recent US economic data has reinforced confidence in the resilience of the American economy. Combined with persistent inflation pressures, this has strengthened expectations that the Federal Reserve may need to keep interest rates elevated for longer. According to the CME FedWatch Tool, markets are now pricing in more than a 50% probability of another Fed rate hike this year, a factor that could continue limiting downside pressure on the US Dollar.