The U.S. dollar index rose 0.33% on Tuesday as hopes for a swift Ukraine resolution faded. Russia rejected NATO peacekeeping involvement, while President Zelenskiy postponed his Saudi visit, stressing Ukraine's role in any deal. Risk assets weakened as geopolitical risks grew.

Fed Signals Steady Rates, Treasury Yields Rise

San Francisco Fed President Daly reaffirmed the need to maintain borrowing costs until inflation declines. Strong Empire State business conditions data lifted Treasury yields, with the 2s-10s curve steepening to +24.2bps. Investors await FOMC minutes and Friday’s PMIs for further clarity.

Euro Drops as Yield Spreads Widen

EUR/USD fell 0.4% amid growing ECB rate cut expectations. ECB’s Cipollone suggested policy adjustments may offset balance sheet contraction. The pair nears key support at its 55-day and 21-day moving averages, while long-dated euro call options suggest hopes for a rebound.

Pound Retreats on Cautious BoE Stance

GBP/USD slid 0.21% from its 1.2635 high after BoE’s Bailey tempered expectations despite strong UK employment data. Focus now shifts to the upcoming UK inflation report for policy cues.

Yen Stays in Tight Range as Yields Support USD/JPY

USD/JPY gained 0.31% as rising U.S. yields supported the dollar, though momentum remained weak within the 151.23-152.22 range. Traders await BoJ board member Takata’s speech for further policy insights.

Commodities React to Market Uncertainty

WTI crude oil rose 1.6% on supply concerns, while gold climbed 1.2% as safe-haven demand strengthened. Copper fell 1.5% under dollar pressure and shifting growth expectations.

Market Outlook: Caution Ahead of Key Events

FX markets showed mixed sentiment, with EUR/USD down 0.38%, GBP/USD off 0.21%, and AUD/USD dipping 0.11%, while USD/JPY edged higher. Geopolitical risks, Fed policy signals, and economic data releases remain key market drivers.