The Bloomberg Dollar Spot Index weakened as much as 1.1% Wednesday, its steepest slide since January, as a relief rally swept through global markets. Treasuries and stocks jumped, and the greenback fell against all 16 major peers — with the euro, pound and yen posting 1% gains.

The move also erased most of the dollar’s wartime advance, which had been fueled by its appeal as a relatively safe asset and the perception that the US economy is better insulated against a global energy shock because it is a net oil exporter.

News of a two-week ceasefire late Tuesday sent energy prices lower as Tehran pledged to reopen a critical pathway for global oil trade, sapping demand for the dollar as investors flocked to riskier markets.

“This is a pure relief rally, especially after the escalation early last week,” said Leah Traub, a portfolio manager at Lord Abbett & Co. “It makes complete sense that markets outside the US are rallying more,” given “the disproportionate negative impacts of the war and energy price shocks.”

Traders promptly dialed up expectations that the Federal Reserve will ease interest rates in the months ahead, a view that had been dashed by inflation fears surrounding the Middle East conflict. Money markets now see nearly a 50% chance the Fed will deliver a quarter-point cut by year-end.

Those expectations could pick up further if oil’s slide extends. Brent futures fell the most in almost six years after the ceasefire announcement, with Iran expected to guarantee safe passage for vessels through the Strait of Hormuz for two weeks. That should pave the way for greater supply of crude and other commodities to global markets.

“The dollar is under significant pressure on the ceasefire news and easing of energy crisis fears,” said Andrew Hazlett, a foreign-exchange trader at Monex Inc. “The major question for the coming days is going to be ‘To what extent does shipping via Hormuz recover, and does this result in sustained de-escalation?’”

Measures of volatility in foreign-exchange markets fell. A reading of expected swings in a basket of currencies against the dollar over the next month slid to its weakest level since the beginning of the conflict.

Trader sentiment as measured in the options market, meanwhile, showed a rapid paring of bullish views on the greenback over the same time period.

“While there are reasons to be cautious, the market moves have been stunning,” said Kathleen Brooks, research director at XTB. “This is still a news driven market, and any sign the ceasefire is at risk could trigger more volatility.”

Reporting by Carter Johnson and Anya Andrianova