Dollar index DXY erases its Iran war gains as Hormuz blockade scales down, safe‑haven flows unwind, and traders pivot from conflict hedges to ceasefire politics.

The U.S. dollar gave back all of its war‑related gains on Friday after Iran declared the Strait of Hormuz “completely open” to commercial shipping, sending the dollar index (DXY) down 0.5% intraday to its lowest level since February 27. According to data from Gate, the move marks a full reversal of the safe‑haven bid that drove the greenback higher when the U.S.–Iran conflict first erupted.

As tankers resumed passage through one of the world’s most critical oil chokepoints, positioning in currency markets flipped from defence to détente, with traders now pricing a durable ceasefire and negotiations toward a broader agreement. Jayati Bharadwaj, head of foreign exchange strategy at TD Securities, summed up the shift bluntly: “Safe-haven buying has begun to fade. That is the reason for the dollar’s decline.”

Dollar sheds war premium

The dollar index had previously climbed as investors sought protection from the risk of supply disruption in the Strait of Hormuz, which handles roughly a fifth of global seaborne crude flows, pushing oil well above $100 per barrel at the height of the crisis. With the channel now reopened and headlines dominated by ceasefire mechanics rather than escalation, that conflict premium is rapidly being unwound across foreign‑exchange markets.

Bharadwaj and her team at TD Securities have argued in recent research that while the dollar can still behave like a haven in acute shocks, its longer‑term appeal is weakening as U.S. growth “exceptionalism” fades and capital rotates into Europe and Asia.

That narrative appears to be reasserting itself as the Iran risk recedes, with DXY slipping back toward levels last seen before the first missiles flew and implied volatility in major currency pairs edging lower.

Markets pivot to politics

Traders are now more focused on the durability of the ceasefire and the contours of any eventual U.S.–Iran settlement than on shipping disruptions in the Gulf, shifting attention from immediate hedging to medium‑term rate expectations and growth differentials. If talks hold and energy prices stabilize, strategists at several major banks have warned that the dollar could continue to grind lower as investors rebuild positions in risk assets that were cut during the height of the crisis.

For crypto markets that trade against the dollar leg, a softer greenback has historically coincided with stronger risk appetite, reinforcing the role of dollar liquidity and macro politics in driving digital‑asset cycles. As the Strait of Hormuz shifts from flashpoint back to shipping corridor, the dollar’s retreat underlines how quickly safe‑haven trades can reverse once the worst‑case scenario is taken off the table.