The dollar index fell sharply Monday, hitting its lowest since the U.S. elections as investors reacted to easing tensions after Ontario’s Premier Ford withdrew proposed electricity tariffs, alleviating fears of broader trade escalation. Treasury yields rose moderately ahead of Wednesday’s key U.S. CPI data, but investor caution remained amid uncertain Fed policy signals.

Euro Surges on Ukraine Diplomacy, Yield Spreads

EUR/USD surged nearly 1.5%, reaching a four-month high at 1.0786 after news of progress in Ukraine-U.S. peace talks boosted optimism. Narrowing German-U.S. yield differentials supported gains, and options markets pointed toward potential further strength toward 1.10. Traders remain cautious ahead of ECB developments despite bullish momentum.

Sterling Gains but Trails Euro Strength

GBP/USD reached a fresh high near its 200-day moving average at 1.2786 but lagged behind the stronger euro. EUR/GBP advanced past key resistance (0.8384), indicating persistent euro outperformance. Upcoming U.K. GDP data on Friday will guide sterling’s near-term direction.

Yen Retreats Slightly as Sentiment Stabilizes

USD/JPY edged higher, stabilizing near 147.50 as yields partially recovered, ending earlier yen gains. Reports that Japan’s pension fund would maintain its current equity allocation limited yen upside. Traders remain cautious ahead of Japanese GDP and wage data.

Commodities Rally on Weaker Dollar

Oil prices rebounded modestly, while gold gained 1.0%, reflecting renewed inflation concerns. Copper jumped nearly 3%, buoyed by a softer dollar and optimism over European and Chinese stimulus plans.

Market Outlook: Volatility Ahead of Key Data

Investors remain cautious ahead of Wednesday’s U.S. inflation report and ECB policy announcements. The dollar’s weakness persists amid geopolitical optimism and shifting yield differentials, setting the stage for continued market volatility.