US Dollar slides as Israel-Iran ceasefire overshadows hawkish Powell's tone

• Federal Reserve Chair Jerome Powell testified before Congress, emphasizing the Fed's data-dependent approach.
• Israel-Iran ceasefire reduces demand for safe-haven assets, contributing to a weaker US Dollar.
• The US Dollar Index drops below 98.00 as easing Middle East tensions overshadow Powell's hawkish comments. 

The US Dollar Index (DXY) is trading lower on Tuesday following news of a ceasefire agreement between Israel and Iran, which has alleviated demand for the US Dollar (USD). At the time of writing, the DXY is trading near 97.65, just above the June low of 97.61.

The Federal Reserve (Fed) Chair Jerome Powell delivered hawkish remarks at his testimony to Congress, stating that the Fed "is not in a hurry to cut rates".

Although he reaffirmed his data-dependent stance, reducing expectations of a July rate cut, markets remained focused on easing geopolitical tensions. 

Market attention quickly shifted toward the ceasefire between Israel and Iran, which spurred a risk-on sentiment and overshadowed concerns about monetary policy.

Israel-Iran ceasefire overshadows hawkish Fed Powell

After an initial attempt to retest the 100.00 level on Monday, the US Dollar Index, which tracks the USD against six other currencies, reversed course as a combination of mixed interest rate signals and geopolitical relief shifted the tone.

US President Donald Trump's announcement of a ceasefire between Israel and Iran spurred optimism on Monday evening, but both sides launched limited retaliatory strikes in the hours that followed.

Despite this, markets interpreted the situation as broadly contained, and safe-haven flows began to unwind. On Tuesday, the ceasefire was confirmed, placing further pressure on the US Dollar Index.

The shift in focus toward risk assets has reduced short-term demand for the Greenback, at least while geopolitical stability holds.

US Dollar Index falls below 98.00

The US Dollar Index is trading below the 98.00 psychological threshold, with immediate resistance now formed at that level. 

A sustained move below 97.60 would expose the Index to further losses toward the next psychological level of 97.00, a level that has not been tested since February 2022.

Dollar Index daily chart

The Relative Strength Index (RSI) is nearing oversold territory, currently reading near 38.0, suggesting that short-term momentum may be stretched. On the upside, any recovery would need to clear 98.00 and 98.40 to shift the short-term bias back to neutral.