U.S. dollar slips as stable Iran ceasefire hopes spur flight to risk assets

Investing.com -- The U.S. dollar turned lower on Thursday after a tentative ceasefire in the Middle East was given a boost as Israel and Lebanon agreed to negotiate, removing a key contention point for Iran. 

The greenback had initially inched up as worries remained over whether the ceasefire would hold, spurring a move to safe haven assets. But the Israel and Lebanon update spurred investors to move into risky equities, helping Wall Street turn higher.  

At 16:29 ET (20:29 GMT), the US Dollar Index was down 0.4% to 98.82. 

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Israel and Lebanon remove a key contention point by agreeing to negotiate

The U.S. and Iran agreed to a two-week ceasefire on Tuesday, just hours ahead of a deadline imposed by President Donald Trump to Tehran to make a deal or face attacks on energy and civilian infrastructure.

Traders cheered the news, piling into stocks and sending the blue-chip Dow Jones Industrial Average to its best day in a year. The dollar suffered as safe haven demand was crimped, with the Dollar Index seeing its worst day since March 19.

However, skepticism over the agreement grew as Israel continued ground operations against Hezbollah in Lebanon. Tehran further strained the diplomatic outlook by accusing both Washington and Israel of violations, labeling the continuation of peace talks "unreasonable."   

But things took a turn after Israeli Prime Minister Benjamin Netanyahu said: "In light of Lebanon’s repeated requests to open direct negotiations with Israel, I instructed at the Government meeting yesterday to open direct negotiations with Lebanon as soon as possible."

"The negotiations will focus on the disarmament of Hezbollah and the establishing of peaceful relations between Israel and Lebanon. Israel appreciates the call made today by the Prime Minister of Lebanon to demilitarize Beirut," Netanyahu added.

Israeli strikes on Lebanon had earlier intensified sharply on Wednesday, with heavy bombardments targeting Hezbollah positions. The White House had said that Lebanon was not part of the ceasefire, which was contested by Iran.

"Wall Street was taking a breather from an extended stretch of gains on mounting doubts concerning the U.S.-Iran ceasefire until equity and fixed income assets pulled an intense bullish intraday reversal after Israel agreed to negotiate with Lebanon. It was precisely the hostilities between those two nations that raised concerns about the durability of the deal," José Torres, senior economist at Interactive Brokers, said. 

U.S. economic data blitz 

Currency market watchers also received a bevy of U.S. economic data on Thursday, including an update on inflation, though the reading did not reflect the impact of surging oil prices due to the Iran war.

The February personal consumption expenditures (PCE) price index, widely seen as the Federal Reserve’s preferred inflation gauge, ticked up 0.4% M/M, in-line with the consensus estimate and the prior month’s reading. On a Y/Y basis, the index rose 3%, also in-line with the consensus and lower than January’s 3.1% increase.

Still, the Y/Y metric remained well above the Fed’s target of 2%. Crucially, the data does not include the impact of surging oil prices from the Iran war, suggesting that U.S. inflation was already running hot ahead of the conflict. 

"Even before the war in Iran, the Fed’s favorite inflation gauge was already at 3% -- well above the 2% target. It’s likely to go higher this spring. This will keep the Fed on hold for the foreseeable future," Heather Long, chief economist at Navy Federal, said on X.

A more telling reading on inflation will arrive on Friday in the form of the March consumer price index (CPI). Though not the Fed’s favored gauge, the data will include any impact from the war and could be the first indication of how bad the oil shock might be.

Also on Thursday’s docket, U.S. consumers’ personal income fell 0.1% M/M in February. Separately, the Bureau of Economic Analysis said U.S. real GDP grew at an annual rate of 0.5% in Q4 2025, a revised figure from an earlier estimate of 0.7% and an initial estimate of 1.4%.

Finally, the number of Americans filing for initial jobless claims in the past week increased to 219k, higher than the expected figure of 209k. Continuing claims fell to 1.794 million, the lowest level since May 2024.

"Economic data has been supportive too, as continuing unemployment claims fell to almost a two-year low while initial filings arrived generally in-line, strengthening confidence that labor conditions, which underpin the cycle, are stable," Interactive Brokers’ Torres said. 

"PCE inflation numbers were elevated as expected, but they failed to move the needle much as those statistics are stale from February. Besides, market participants are growing accustomed to managing lofty price pressure figures and heavy interest rates, although tomorrow’s March CPI will offer a substantial test for the bulls," Torres added.

Euro, sterling higher; yen slips

Turning to other major currencies, the euro EUR/USD and the sterling GBP/USD gained on Thursday, helped by the weaker dollar. The former was up 0.3% to 1.1697 and the latter added 0.3% to 1.3434. 

"While we project rate hikes by midyear from Western European central banks, their (Central and Eastern European) counterparts seem less inclined to tighten. With inflation rather low at the start of 2026, CEE (central banks) were still geared towards marginal easing before the Iran conflict erupted. And while they have shelved rate cuts, hikes are not being signaled anywhere," JPMorgan analysts led by Nora Szentivanyi said.

"Globally, we anticipate policy rates to remain stable this year, with 20bp of (developed markets) tightening to be offset by a further 60bp of easing in (emerging markets). With medium-term inflation expectations anchored and policy stances generally at or above a perceived neutral setting, central bankers will likely take time to grapple with the increased risk of both lower growth and higher inflation. Our policy rate forecasts are broadly less hawkish/more dovish than market pricing for the end of this year," the analysts said.

Elsewhere, the Japanese yen USD/JPY weakened, slipping back towards the key 160 level. The pair was last up 0.3% to 159.02. 

Ayushman Ojha and Senad Karaahmetovic contributed to this article