Dollar Index Retreats as U.S.-Iran Proposal Shifts Market Sentiment Ahead of Fed Meeting

The US Dollar Index slipped to around 98.5 on Monday, reversing earlier gains after reports emerged that Iran had submitted a new proposal to the United States aimed at reopening the Strait of Hormuz and easing geopolitical tensions.

The proposal, reportedly delivered through Pakistani mediators, includes extending the current ceasefire framework to allow progress toward a broader settlement. It also calls for postponing nuclear negotiations until the U.S. lifts its blockade of the critical oil transit route.

Earlier in the session, the dollar had strengthened after President Donald Trump canceled plans to send senior envoys for a second round of negotiations with Tehran. Iranian officials reiterated that they would not engage in discussions under what they described as conditions of pressure or blockade.

Currency markets have remained highly sensitive to developments surrounding the Strait of Hormuz, given its central role in global energy flows and its influence on inflation expectations and risk sentiment.

Attention now turns to the upcoming policy decision from the Federal Reserve, where officials are widely expected to hold interest rates steady. The meeting could mark the final session chaired by Jerome Powell, with Kevin Warsh anticipated to assume leadership in May.

As geopolitical developments and central bank expectations converge, the trajectory of the dollar is likely to remain tied to both diplomatic progress in the Middle East and signals on future U.S. monetary policy.