The dollar is falling as the truce between Israel and Iran strengthens risk appetite

The US dollar remained close to 4-year lows against the euro, supported by a decline in us two-year Treasury bond yields to a one-and-a-half-month low.

The decline in oil prices seems to have reduced inflation fears, which boosted demand for bonds and weakened pressure on the dollar.

Fragile truce between Israel and Iran

Despite the escalating threats, the temporary truce between Israel and Iran has held, despite Israel's assurance that it will respond strongly to any Iranian missile strikes.

These developments come after former US President Donald Trump announced the end of hostilities, but reality shows that the US raids did not destroy the Iranian nuclear program, but hindered it for only a few months according to a preliminary US intelligence assessment, which contradicts Trump's previous claims to eliminate it.

Despite the fragility of the ceasefire, the markets ignore these tensions, as they do not seem worried about a limited conflict centered on mutual airstrikes.

Markets would have reacted negatively only if the crisis escalated into a wider war involving direct US intervention or the closure of the Strait of Hormuz, but these scenarios currently seem unlikely.

Expectations of the monetary policy of the Federal Reserve

Markets are still assessing an 18% probability of a rate cut next July, despite Fed Chairman Jerome Powell emphasizing his cautious approach during his semi-annual testimony to Congress.

Powell stressed that the central bank does not intend to rush to ease monetary policy, while investors are waiting today for the second part of his testimony before the Senate for further clarifications.

Japanese Yen weakness

On the other hand, the Japanese yen fell after the minutes of the Bank of Japan's June meeting revealed a split among policymakers, with some calling for maintaining interest rates at current levels due to concerns about the impact of US tariffs on the Japanese economy.