The US Dollar Index (DXY) traded just above 98.00, its lowest level since the Middle East war began on 28 February. The US dollar was the weakest-performing G8 currency this week.
The DXY fell nearly 1% this week and is more than 2% lower since a ceasefire was announced last week. Markets focused on the chance that US–Iran peace talks may restart soon.
On Tuesday, US President Donald Trump said negotiations with Iran might resume soon in an interview with the New York Post. Iran made no comment, while UN Secretary-General António Guterres said talks are likely to restart this week.
US Producer Prices Index (PPI) data for March showed annual inflation at the factory gate rose to 4.0% from 3.4% in February. This was below the 4.6% market forecast.
Core PPI, which excludes food and energy, held at 3.8% year on year, unchanged from February. This was below the expected 4.2% reading.
Looking back at the DXY’s slide to 98.00 this time last year, in April 2025, provides a clear roadmap for the current market. The dynamic was a peace-driven, risk-on mood coupled with soft inflation data, which is mirroring what we are seeing today. With the dollar index currently hovering just below 101.50 following the de-escalation of naval tensions in the South China Sea last week, we expect similar downward pressure.
The situation in 2025 was compounded by a weaker-than-expected Producer Price Index, which eased pressure on the Fed. We have just seen the March 2026 Consumer Price Index print at 2.9%, just missing the 3.0% forecast and marking the second consecutive month of cooling inflation. Consequently, Fed funds futures are now pricing in only a 20% chance of a summer rate hike, down from over 50% last month.
For traders, this creates an opportunity to position for further dollar weakness. We should consider buying put options on the DXY or related ETFs, targeting a move towards the 100.00 psychological support level in the coming weeks. Shorting US dollar futures contracts against a basket of commodity currencies also appears attractive as risk appetite improves.
A critical lesson from the 2025 Iran ceasefire event was the collapse in currency volatility. The CME’s CVOL dollar volatility index dropped nearly 15% in the week that followed the peace talks announcement in 2025. We are seeing a similar compression in volatility now, making long options strategies cheaper to implement than they were a month ago.
This pattern of a rapidly weakening dollar following the peak of a geopolitical crisis is not new. We observed similar rapid unwinds in safe-haven demand following the energy price shock in late 2022. However, we must remain alert, as any hawkish surprise from Fed speakers or a re-escalation of tensions could quickly reverse this trend.
