The dollar fell sharply after US President Donald Trump said he would postpone strikes against Iranian energy targets for five days.

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The Bloomberg Dollar Spot Index reversed a 0.5% advance, dropping as much as 0.4% in early New York trading. The greenback earlier hit the highest level since December as the US and Iran exchanged threats.

The dollar is holding onto gains of nearly 2% since the war started and surging energy prices helped support the oil-exporting US economy. Before Trump halted attacks on Monday, options traders had been betting on further gains in the greenback, with one-month sentiment hitting earlier the most bullish since 2022.

European hedge funds that bought the dollar on Friday came back for more during early Monday trading, according to currency traders familiar with the transactions who asked not to be identified. Although spot and options volumes run below recent averages, leveraged investors were seeking to position for further dollar gains.

Risk reversals pointed the same way, with the premium for dollar gains widening earlier on Monday. Demand had also surged for protection against abrupt moves in the greenback.

Source: IndexBox Market Intelligence Platform