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(Reuters) -The euro and the yen rose against the dollar on Tuesday after the announcement of a ceasefire between Israel and Iran triggered a sharp drop in oil prices, though investors remained cautious about the outlook in the Middle East.

The European Union and Japan rely heavily on imports of oil and liquefied natural gas, while the U.S. is a net exporter.

U.S. President Donald Trump said on Tuesday that both Israel and Iran violated a ceasefire he announced hours earlier, adding that Iran's nuclear capabilities were gone.

Iraq said on Tuesday that drones targeted several military sites and bases belonging to Iraqi security forces, highlighting instability in the region.

Oil fell 2.9%, while global shares surged, with the threat to the vital Strait of Hormuz shipping lane seemingly over, but analysts flagged the high level of uncertainty.

"The first piece of uncertainty we face is whether the conflict between Israel, the U.S. and Iran is now over," said Kit Juckes, macro strategist at Societe Generale, mentioning reports of further missile launches.

"After that, we don’t know what the strikes in Iran will mean for the leadership of the country," he added. The euro rose 0.16% to $1.1597. It hit $1.1632 a couple of weeks ago, its highest level since October 2021. It climbed almost 0.5% in the previous session, fuelled by scepticism that tensions would escalate further after Iran’s retaliatory strike on an American air base in Qatar was widely seen as symbolic.

"The euro continues to benefit from the buildup of dollar shorts and its substitution value rather than any strong euro zone narrative," said Francesco Pesole, forex strategist at ING.

The safe-haven status of the dollar has been under scrutiny due to concerns over U.S. fiscal policy and potential shifts in global reserve currency preferences.

"Incidentally, the drop in oil prices means concerns about the erosion of euro fundamentals are dissipating," Pesole added.

The dollar fell 0.74% to 145.07 versus the yen.

The risk-sensitive Australian dollar got a lift and last traded 0.75% higher at $0.6510, as did the New Zealand currency, which rose 0.95% to $0.6034.

Israel's shekel rallied sharply too, jumping 1.9% against the dollar to its strongest since February 2023.

Adding to the pressure on the dollar were dovish comments from Federal Reserve policymaker Michelle Bowman, who said the U.S. central bank should consider interest rate cuts soon, triggering a fall in U.S. Treasury yields.

Against a basket of currencies, the dollar was down 0.15% at 98.07, extending its more than 0.5% decline in the previous session.

Fed Governor Christopher Waller said in a television interview last week that he would consider a rate cut at next month's meeting as well.

Mohit Kumar, economist at Jefferies, said he expected U.S. rates to be at the neutral level when Chair Jerome Powell leaves in 2026. Fed estimates see the real neutral rate slightly below 1%, the inflation target is 2%.

"We are not in the July camp, but do believe that data should show signs of weakness over the summer months and hence prompt a rate cut in September," Kumar said.

Trump said on Tuesday that U.S. rates should be lowered by at least two to three percentage points.

Markets are now pricing in close to a 23% chance the Fed could ease rates in July, up from 14.5% a day ago, according to the CME FedWatch tool.

Fed Chair Jerome Powell is due to testify before the U.S. Congress on Tuesday and Wednesday, where focus will be on the outlook for U.S. rates.

In cryptocurrencies, bitcoin rose 1.5% to $105,356, while ether jumped 2.9% to $2,415, in a reflection of the positive risk sentiment.

(Reporting by Stefano Rebaudo. Editing by Jamie Freed, Tomasz Janowski and Mark Potter)