Oil plunges as ceasefire eases geopolitical risk

Oil dives further as Middle East tension cools

Oil prices continued their sharp decline on Tuesday, falling another 4% after a 7% drop in the previous session. The market responded positively to the ceasefire agreement between Israel and Iran announced by the US president. Despite Iran's retaliatory strike on a US base in Qatar, the absence of casualties and Tehran's decision to avoid disrupting the Strait of Hormuz helped ease concerns over potential oil supply shocks.

This renewed risk-on sentiment pushed investors out of energy hedges and into equities, while simultaneously pressuring the dollar.

Dollar drops as dovish Fed rhetoric gains ground

The US dollar fell sharply overnight and extended losses through the Asian session, becoming the worst performer among major currencies this week. Traders adjusted positions on growing expectations that the Federal Reserve may cut interest rates as early as July. Recent remarks from Fed officials signaling support for easing, if inflation remains contained and labor data weakens, boosted these expectations. Vice Chair Michelle Bowman and other policymakers have now aligned more closely with the dovish wing of the committee.

As a result, market-implied odds for a July rate cut rose from 15% to 25% in just 24 hours.

Powell testimony expected to offer cautious tone

Fed Chair Jerome Powell’s semiannual testimony before Congress, starting Tuesday, is the key event of the week. While no surprises are expected given the Fed’s recent pause, markets are watching for any signal that Powell may be open to a rate cut sooner rather than later. A dovish tone could accelerate the dollar’s retreat, particularly if Powell addresses tariff impacts or shifting labor market dynamics.

Trade diplomacy resurfaces as key theme

Japan’s lead trade negotiator is set to visit Washington for renewed discussions beginning June 26, hoping to resolve disputes around US auto tariffs. This marks the first major engagement since the fruitless June 16 summit. Meanwhile, Canada and the European Union are reinforcing their alliance through a new defense partnership, signaling a strategic pivot in transatlantic cooperation. Canadian leaders continue to take a cautious approach on trade with Washington, insisting that any agreement must meet domestic interests.