The dollar sank to its lowest level in a month while the euro, yen, Aussie and sterling rallied hard in Asian trading on Wednesday after US President Donald Trump said he had agreed to a two-week ceasefire with Iran.
The yen strengthened 0.8% against the greenback to 158.36 per dollar. The euro was up 0.7% at $1.1674, while the British pound appreciated 0.8% to $1.34. The Australian dollar climbed 1.1% to $0.7054.
Trump had earlier threatened widespread attacks on Iran's civilian infrastructure, drawing international condemnation after issuing an extraordinary warning that "a whole civilization will die tonight" if his demands were not met.
Investors' risk appetite rapidly returned after the ceasefire announcement, less than two hours before Trump's deadline for Tehran to reopen the Strait of Hormuz would have expired, Reuters reported.
If the strategic waterway is reopened, "we could be able to consolidate the risk-on rally that we're seeing," said Ray Attrill, head of FX strategy at National Australia Bank in Sydney.
"But a lot has to happen in the next 14 days," he said, adding that currencies would be vulnerable to a retracement of their recent moves in the interim. "Markets still need to proceed with a degree of skepticism."
Traders' attention turned to central banks' next moves as oil prices fell sharply. Brent crude slid 13.4% to $94.68 a barrel but was still well above pre-war levels.
The kiwi dollar climbed 1.5% to $0.5819, extending gains after the Reserve Bank of New Zealand kept its policy rate at 2.25% on Wednesday for a second straight meeting, choosing to sit tight as it gauges the economic fallout from the war. But the central bank signaled it is ready to act if inflation pressures intensify.
Fed funds futures are pricing coin-toss odds that the Federal Reserve could cut rates by at least 25 basis points at its December 9 meeting, compared to an implied 74.5% probability a day earlier that the US central bank would remain on hold, according to the CME Group's FedWatch tool.
The US dollar index, which measures the greenback's strength against a basket of six currencies, weakened for a third consecutive day to lows of 98.838, its weakest since March 11.
Elsewhere, the won strengthened 1.6% to 1,477.10, its biggest one-day appreciation since the Iran war began and shrugging off fresh geopolitical tensions on the Korean peninsula. South Korea's military said North Korea fired several ballistic missiles toward the sea off its east coast on Wednesday, following a separate launch detected a day earlier.
Cryptocurrencies also rallied, with bitcoin advancing 2.9% to $71,327.07, and ether climbing5.6% to $2,233.90.
