Dow Jones futures advance on Israel-Iran truce, increase in Fed dovish bets

• US equity futures surges on Israel-Iran truce and dovish commentary from Fed officials.
• A ceasefire between Israel and Iran has prompted risk-on impulse.
• Investors await Fed Powell's two-day testimony for fresh cues on the monetary policy outlook.

Dow Jones futures gain sharply during the European trading session on Tuesday due to multiple tailwinds: ceasefire between Israel and Iran, and dovish commentary from a slew of Federal Reserve (Fed) officials, including Fed Vice Chair Michelle Bowman, Governor Christopher Waller, and Chicago Fed President Austan Goolsbee.

At the time of writing, Dow Jones futures jump almost 0.7% to near 42,870. S&P 500 futures added 47 points and rises to near 6,072.

The agreement of a ceasefire between Tel Aviv and Tehran after an aerial war for 12 calendar days has increased demand of riskier assets worldwide. During European trading hours, United States (US) President Donald Trump stated in a post on Truth.Social that a truce between two Middle East nations has become effective now and urged them not to violate the same. "The ceasefire is now in effect. Please do not violate it!" Trump wrote.

The ceasefire announcement has apparently led to a sharp decline in the appeal of safe-haven assets, such as the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, slumps to near 98.00, the lowest level seen in a week.

Another reason behind rising US equity futures is a sharp decline in the Oil price. Lower energy prices often lead to cooling price pressures, a move that supports interest rate cuts from the Federal Reserve (Fed). Interest rate cuts by the Fed bodes well for the equity market as companies get the opportunity to raise cheaper funds.

Meanwhile, Fed officials have already started arguing in favor of reducing interest rates soon, while expressing confidence that the impact of the Donald Trump's tariff policy will be limited and citing labor market risks.

On Monday, Fed Vice Chair Michelle Bowman said, "It is time to consider adjusting the policy rate, and added, "We should put more weight on downside risks to the job market going forward." Bowman also showed openness for lowering interest rates in the July policy meeting.

The dovish commentary from Fed officials has forced traders to raise bets supporting interest rate cuts in the July meeting. According to the CME FedWatch tool, the probability for the Fed to reduce interest rates next month has increased to 22.7% from 14.5% recorded on Friday.

For fresh cues on the monetary policy outlook, investors await Fed Chair Jerome Powell's two-day testimony before the US House Financial Services Committee, which will be started from Tuesday.