The U.S. dollar fell on Tuesday as worldwide markets became more optimistic after President Donald Trump announced a surprise ceasefire between Iran and Israel. The improved mood spurred investors to shift away from safer assets such as the dollar and towards riskier assets like the Australian and New Zealand currencies.

On his Truth Social page, Trump posted that both Israel and Iran had consented to a "complete and total" ceasefire. According to him, Iran would commence the ceasefire immediately, while Israel would do so after 12 hours. If the two parties desist from attacks, the war, now in its 12th day, would technically be over in 24 hours.

Qatari and Iranian officials reiterated Tehran's acceptance, and Israeli sources said Prime Minister Netanyahu agreed to the ceasefire as well, provided Iran stops further attacks.

Risk-Friendly Currencies Appreciate

The news also supported investor sentiment. Consequently, currencies that typically appreciate when risk appetite is better—such as the Australian and New Zealand dollars—appreciated. The Australian dollar rose 0.35% to $0.6483, and the New Zealand dollar appreciated 0.37% to trade at $0.5998.

National Australia Bank currency analyst Rodrigo Catril said the news of a ceasefire was positive for overall sentiment. But he noted that there needs to be more information, particularly as to how long-lasting the peace will be.

Dollar Falls as Safe-Haven Demand Unwinds

The dollar, which had gained last week as Middle East tensions rose, retreated after the news of the ceasefire. Against the Japanese yen, the dollar declined 0.21% to 145.79. The euro edged higher to $1.1602, up 0.21%, and the British pound increased 0.18% to $1.3551.

Trump made the announcement just after Iran had launched missiles against a U.S. airbase in Qatar. The attack resulted in no casualties and was referred to by Trump as a "weak response" to previous U.S. attacks on Iran.

Hints of U.S. Rate Cuts Add Pressure

Adding to the dollar's weakness were recent words from Federal Reserve officials that indicated interest rate cuts could be imminent. Fed policymaker Michelle Bowman said the central bank should consider reducing rates. Her sentiment was shared by Fed Governor Christopher Waller, who said he is willing to cut rates in July.

Based on the CME FedWatch tool, markets are now expecting a 20% probability of a rate reduction next month, higher than 14.5% just a day ago. Everything is now hanging in the balance on Fed Chair Jerome Powell, who is appearing before Congress on Tuesday and Wednesday. Investors look for an indication of the Fed's intentions in the near months.

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