US Dollar Index weakens to near 99.00 on US-Iran peace deal hopes

The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 99.05 during the Asian trading hours on Monday. The DXY loses momentum as the prospect of a deal to end the Iran war buoyed risk appetite. 

US President Donald Trump said on Sunday that Washington and Iran had "largely negotiated" a memorandum of understanding on a peace deal that would reopen the Strait of ‌Hormuz, per Reuters. 

Nick Twidale, chief market analyst at ATFX Global, expects the market to embrace more risk on Monday but not to surge higher until there is confirmation that the Strait of Hormuz will reopen.

A lack of clarity over when the critical waterway would open kept enthusiasm in check. Tehran maintains a tight grip on shipping through the Strait of Hormuz, and the US refuses to lift its naval blockade on Iranian-linked vessels. 

Rising inflationary pressures have shifted the US Federal Reserve (Fed) expectation toward potential future interest rate hikes rather than cuts. This, in turn, could lift the US Dollar against its rivals. Markets are pricing in a 45.1% probability that the Fed will raise interest rates by 25 basis points (bps) by year-end, according to the CME FedWatch tool. 

The US Personal Consumption Expenditures (PCE) - Price Index report will take center stage on Thursday. If the report shows hotter-than-expected outcomes, this could boost the Greenback in the near term.