Dollar Opens Lower as Ceasefire Hits Record Long Positions

The dollar gapped down at the start of the week. The Middle East ceasefire surprised speculators who had built the largest net long position in the dollar index since 2015, according to CFTC data. The de-escalation weakens the case for the Fed to hold rates high, traders said, removing a key advantage the greenback had held.

FOMC doves are likely to push for a pause after weaker employment and inflation prints, analysts at Commerzbank said. The hawks had counted on higher oil prices feeding into core inflation through second-round effects, but the ceasefire deflates that argument. De-escalation makes the rate decision more predictable, they said.

Other currencies capitalized on the dollar's retreat. The eurozone composite PMI rose above 50 for the first time since March, data showed, a reading that the statistics office defines as expansion. EURUSD had not reacted to the print initially, but the ceasefire shifted attention back to the economy's strength. The region's ability to weather oil-price shocks could let the ECB tighten policy without fear, Commerzbank said.