US Dollar Drops Below 97 Amid Middle East Ceasefire

The US dollar experienced a notable decline this week, falling below 97 for the first time since March 2022. This drop was primarily driven by the easing of geopolitical tensions in the Middle East following a ceasefire agreement in the Israeli-Iranian conflict. The initial rise in the dollar's value, triggered by US involvement in the conflict, was swiftly reversed as the ceasefire took effect, leading to fresh lows not seen in over a year.

Market participants are now eagerly awaiting key US economic data, which is expected to influence the dollar's trajectory in the coming week. These data points, including PMI and nonfarm payroll reports, are crucial as they have the potential to shape the monetary policy outlook and overall market sentiment. The market is particularly focused on whether the Federal Reserve might adjust its stance on interest rates based on the strength of the economic data.

Investors have shifted their attention to potential economic developments as geopolitical tensions have cooled. Federal Reserve Chair Jerome Powell is set to participate in important dialogues, while key speeches from Atlanta Fed President Raphael Bostic and Chicago Fed President Austan Goolsbee are also anticipated. Market observers are closely watching for any hints of policy shifts or economic commentary that could impact the financial landscape.

Cryptocurrency markets are also poised for volatility as the US economic data looms. Historically, a weakening US dollar has correlated with bullish trends in cryptocurrencies like Bitcoin and Ethereum. The current price of Bitcoin stands at $107,341.09, reflecting an active and changing market environment. Analysts suggest that if employment data remains strong and supports continued economic recovery, short-term dollar rebounds might occur, leading to potential volatility in cryptocurrencies.

The Federal Reserve's cautious stance on interest rate cuts, as emphasized by Chair Jerome Powell, has further supported a risk-on sentiment in the markets. Powell's testimony to House lawmakers highlighted the Fed's patience in addressing inflation and potential tariff pressures, which injected short-term uncertainty but remained supportive of risk assets overall. This cautious approach, combined with softer U.S. consumer-confidence data, pushed two-year Treasury yields to a six-week low, increasing the perceived chance of a July rate cut.

Crypto markets, particularly Bitcoin, responded positively to these developments. Bitcoin surged to near $107,000, driven by the ceasefire and the Fed's policy outlook. However, there are cautions about the durability of the truce, citing leaked intelligence reports that questioned the effectiveness of strikes on Iran's nuclear capabilities. This geopolitical relief, combined with broader market sentiment, saw the CoinDesk 20 index gain 1%, highlighting crypto's correlation with traditional equities during risk-on phases.

Crypto derivatives markets indicate a neutral to slightly bullish near-term outlook. Traders are selling straddles and short puts around $105,000 and $100,000 for the June 27 expiry, suggesting expectations of tight price action between these levels. However, call option buying targeting $108,000 and $112,000 for July and September expiries reveals a modest bullish inclination. On-chain metrics show Bitcoin's annualized three-month futures basis on offshore exchanges at 5%, below May highs of over 7%, while perpetual funding rates on Binance stand at 0.0048% (5.26% annualized), reflecting moderate bullish sentiment.

Spot Bitcoin ETFs recorded daily net inflows of $588.6 million, with cumulative flows reaching $47.58 billion and total holdings of approximately 1.23 million BTC. Similarly, spot Ethereum ETFs saw $71.3 million in daily inflows, totaling $4.09 billion and holding about 4.02 million ETH. Key events to watch include Fed Chair Powell's Senate testimony, and upcoming token unlocks like Optimism's $17.13 million unlock on June 30. Traders should focus on support at $105,000 and resistance at $108,000 for BTC, using range-bound strategies amid current uncertainties, while monitoring inflation data and tariff developments for directional shifts.