The US Dollar fell against major peers on Monday as reports of US-Iran negotiations improved market mood during the European session. The US Dollar Index (DXY) traded at 99.15 after touching 99.09, down from an intra-day high of 99.40.
An Iranian Foreign Ministry spokesperson said Washington and Tehran would review a peace proposal sent by Pakistani mediators. The spokesperson also said Iranian and Omani technical teams discussed options last week to restore safe passage through Hormuz, while WTI oil prices dropped a few US Dollars from May highs.
Dollar Slides On Peace Talk Hopes
Earlier, reports of a drone attack on a nuclear plant in the United Arab Emirates, allegedly by Iran or allied groups, added pressure to a fragile ceasefire. Axios reported that US President Donald Trump met his national security team on next steps, and he posted on X that “the clock” is ticking on Iran.
The US economic calendar is largely empty on Monday. Focus later in the week turns to the preliminary S&P Global PMIs for May, which are expected to offer more detail on how the Iran war and the energy shock are affecting US activity.
A correction dated May 18 at 10:27 GMT amended the official’s role to the Iranian Foreign Ministry, not the Finance Ministry.
Looking back a year ago, we saw how sensitive markets were to rumors of US-Iran negotiations. The Dollar Index fell from 99.40 to below 99.10 as risk appetite returned on whispers of peace talks. This serves as a clear playbook for how headline risk can directly impact safe-haven assets.
Risk Appetite And Headline Driven Volatility
The situation today feels similar, with renewed tensions in the Strait of Hormuz pushing WTI crude prices back toward $85 a barrel last week. Just as in 2025, any hint of diplomatic progress could quickly reverse this, creating significant volatility. As of this morning, oil prices are already down 1.5% on unconfirmed reports of back-channel discussions.
The US Dollar Index is currently holding around 103.50, but we are seeing signs of weakness as traders weigh geopolitical risk against economic data. The CBOE Volatility Index (VIX), a key measure of market fear, has crept up to 17 from a low of 13 just last month. This shows that options traders are already pricing in a higher probability of sharp market moves.
Given this, we should consider positioning for a potential drop in the dollar if de-escalation headlines emerge. Short-term put options on dollar-tracking ETFs or call options on the EUR/USD could be effective. The elevated implied volatility suggests that even a small positive development could lead to a swift move.
For oil, the lesson from 2025 is that prices can fall several dollars in a single session on peace news. Derivative traders should be ready for this by either buying WTI put options to hedge long positions or to speculate on a rapid price decline. The futures curve shows the market remains tight, making it highly susceptible to a sudden shift in sentiment.
We must also watch this week’s preliminary S&P Global PMI figures, just as we did last year. The latest US services PMI reading came in at a soft 50.9, and another weak print could amplify any dollar weakness caused by easing geopolitical tensions. The combination of slowing economic activity and reduced global risk would be a powerful catalyst.
