Safe-haven demand cools down! Trump said the US and Iran are close to reaching an agreement, causing the US dollar to suffer its biggest drop in over a month.

With U.S. President Trump sending a positive signal that the U.S.-Iran conflict may be closer to ending, market risk aversion has noticeably decreased, and the U.S. dollar has experienced its largest single-day decline in over a month. Data shows that the Bloomberg Dollar Spot Index fell by 0.3% during the New York trading session on Thursday, marking the largest single-day drop since May 6. Earlier, Trump announced the cancellation of a new round of military strikes against Iran and indicated that the U.S. and Iran were close to reaching a peace agreement. Influenced by this news, international financial markets quickly saw a rise in risk appetite. International oil prices significantly dropped, U.S. Treasury bond prices increased, and the U.S. dollar, as a traditional safe-haven asset, saw selling pressure. Trump stated that negotiations between the U.S. and Iran had made significant progress and that a related agreement was expected to be formally signed in the coming days. He also mentioned that once an agreement is reached, the Strait of Hormuz would resume normal navigation. It is widely believed that if tensions in the Middle East ease, the risk of disruption in global energy supplies would significantly decrease, weakening investors' demand for safe-haven assets. Alex Cohen, a foreign exchange strategist at Bank of America, said, "The news this afternoon clearly sends a more constructive signal, with market expectations for an imminent peace agreement heating up, putting pressure on the dollar." In fact, since the end of February when the U.S. and Israel carried out military actions against Iran, the U.S. dollar has benefited from inflows of safe-haven funds. Data shows that the dollar has risen by approximately 1.6% since the conflict erupted. During this period, investors have continued to increase their holdings of dollar assets to cope with market volatility caused by geopolitical risks. At the same time, the movement of the U.S. dollar has shown a strong correlation with international oil prices. As the U.S. has become one of the major global energy-producing countries, rising oil prices often benefit the U.S. dollar's performance, while falling oil prices may weaken the attractiveness of the dollar. On Thursday, as the market bet on a cooling of tensions in the Middle East, international oil prices dropped in sync, further exacerbating the dollar's decline. It is worth noting that despite the significant pullback of the dollar on that day, option markets indicate that investors remain relatively optimistic about the future direction of the dollar. Data shows that the cost of options used to hedge against the risk of the dollar rising in the next month slightly decreased on Thursday, but overall levels still suggest that the market continues to be bullish on the medium to long-term performance of the dollar. Analysts point out that the current focus of the market has gradually shifted from geopolitical risks to the outlook of U.S. monetary policy. Recent U.S. employment data has been consistently strong, and with inflation levels still above the Fed's target, market expectations for the Fed to maintain high interest rates or even raise them further during the year have significantly increased. Therefore, even though the easing of U.S.-Iran tensions has reduced some safe-haven demand, the relative resilience of the U.S. economy and the high level of interest rates may still support the dollar. In the coming days, whether the U.S. and Iran can formally reach an agreement, and whether the Strait of Hormuz can resume normal operations, will be important variables affecting the global financial markets and the direction of the U.S. dollar.