The dollar fell to its weakest level in a month against major currencies on Monday, dragged down by a 4% drop in crude oil prices as investors bet that a fresh diplomatic push could end the U.S.-Iran conflict.

The DXY dollar index, which measures the greenback against a basket of major currencies, fell 0.5% to 101.45 and touched an intraday low of 101.426. Brent crude settled 4% lower at $108.91 a barrel. The logic was straightforward: expectations that diplomacy could settle the dispute eased worries about disruptions to oil supplies from the Middle East, and cheaper oil weakened the case for holding dollars as a safe haven.

What changed in currency markets?

Kit Juckes, head of FX strategy at Societe Generale, said lower oil prices made markets "slightly more risk-friendly, slightly more dollar negative," according to Reuters. He also noted that some investors had trimmed their dollar holdings.

The euro gained 0.7% to $1.1234, rising despite Fitch's decision — announced after Friday's close — to lower its outlook on France from stable to negative. Sterling advanced to $1.3445. The Japanese yen held flat against the dollar at 157.64, and the Australian dollar barely moved at $0.7028.

For context, a 0.7% single-day gain in the euro is a substantial move for a major currency pair; the dollar's slide to a one-month trough marks a meaningful reversal after weeks in which energy-driven inflation fears supported demand for the greenback.

Why is this week pivotal for markets?

Investors face an unusually crowded calendar. U.S. midterm elections take place on Tuesday, tech earnings reports and the nonfarm payrolls jobs data are due later in the week, and four major central banks are set to announce rate decisions.

The midterms will settle whether President Donald Trump's Republican Party holds on to Congress or hands it to Democrats. Democrats hold the edge in the race for the House of Representatives, whereas the outcome in the Senate is harder to call, according to Reuters.

Central banks in Britain, Australia, Norway and Sweden are also due to announce rate decisions this week, Reuters reported. The Reserve Bank of Australia is forecast to lift its benchmark rate to 4.85% on Tuesday.

What does cheaper oil mean for the dollar trade?

The link runs through risk appetite. When investors fear supply shocks from the Middle East, they buy dollars and oil prices climb; when diplomacy reduces that risk, both trades unwind together. Monday's session delivered a textbook version of that pattern, with Brent's 4% slide to $108.91 coinciding with the DXY's fall to 101.45.

The coming days will test whether the shift holds. Election results, jobs figures and a cluster of central bank decisions could each reset expectations for inflation, growth and interest rates — the variables that ultimately drive currency markets.

For now, the market's verdict is clear: peace prospects in the Gulf cost the dollar a full month of gains in a single session.