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The U.S. dollar softened slightly on Monday, pulling back from recent highs as market participants reassessed geopolitical risks following reports of potential diplomatic breakthroughs between Iran, the U.S., and Israel. Despite easing modestly, the dollar index remained within its recent range, reflecting cautious positioning ahead of critical central bank meetings scheduled for this week. Investor sentiment improved cautiously after the Wall Street Journal reported that Iranian officials had approached Arab intermediaries—specifically Qatar, Saudi Arabia, and Oman—to help initiate renewed nuclear negotiations with the United States. U.S. President Donald Trump further encouraged optimism by publicly calling on Tehran to seize this diplomatic opportunity “before it's too late.” The diplomatic overtures significantly reduced market concerns over the possibility of a broad regional conflict, especially as Israel’s military actions remained targeted primarily toward limiting Iran’s nuclear capabilities, as emphasized by Israeli Prime Minister Benjamin Netanyahu in his address to military forces. Equity markets benefit from improving risk appetite Reflecting this moderate easing of geopolitical tensions, risk sentiment broadly improved across global markets. The U.S. equity market responded positively, with the S&P 500 rising 0.81%, led predominantly by gains in consumer discretionary and technology sectors. Market sentiment was further buoyed by the notable pullback in energy prices, as WTI crude fell 2.08%, signaling increased confidence among traders that Middle East oil supplies would remain largely unaffected by recent hostilities. In commodity markets, gold prices retreated by approximately 1.3% as investors booked profits after the precious metal reached an eight-week high during last week's geopolitical uncertainty. Copper prices edged modestly higher, up by 0.24%, supported by encouraging signs of improved consumer demand in China, raising expectations for stronger global industrial activity in the coming months. Euro strengthens cautiously ahead of Fed announcement In currency markets, EUR/USD advanced modestly, benefiting from a weaker dollar and technical factors supportive of potential bullish momentum. However, investors remained cautious, refraining from placing significant directional bets ahead of the pivotal U.S. Federal Reserve policy decision on Wednesday. Market participants are eager for clarity regarding future U.S. interest-rate policy, particularly whether Fed officials will reinforce expectations for rate cuts or adopt a more neutral, data-dependent stance amid recent signs of cooling U.S. inflationary pressures. Yen remains range-bound before key Bank of Japan meeting USD/JPY saw modest gains, yet remained tightly constrained within recent narrow ranges. The pair's Bollinger Band width narrowed sharply, marking its tightest range since January, reflecting investor hesitation ahead of Tuesday’s crucial Bank of Japan meeting. Governor Kazuo Ueda and his policy team face a complex task, balancing rising domestic inflationary pressures with lingering economic uncertainties, leaving investors uncertain whether the BoJ will signal adjustments in policy or maintain its cautious status quo. Sterling resilient ahead of Bank of England decision GBP/USD displayed resilience and edged slightly higher but remained capped beneath key technical resistance levels. Investors maintained cautious optimism toward sterling ahead of Thursday’s highly anticipated Bank of England policy meeting. Persistent inflation pressures coupled with slowing U.K. growth have created uncertainty over the BoE’s next policy move, prompting market participants to closely scrutinize the central bank’s forward guidance for clearer insights into its future rate path. Treasury yields rise moderately, risk-sensitive currencies outperform U.S. Treasury yields edged modestly higher across the curve, rising by 1 to 3 basis points, with the yield curve steepening slightly amid improved global risk sentiment. Meanwhile, risk-sensitive currencies showed notable strength. The Australian dollar significantly outperformed, with AUD/USD rising 0.72% and AUD/JPY climbing sharply by 1.11%, reflecting investors’ cautious optimism on reduced geopolitical anxieties and renewed confidence in diplomatic developments. As global markets move toward critical central bank announcements later in the week, traders will closely watch developments in Middle East diplomacy, U.S. monetary policy signals from the Fed, BoJ’s stance on yen appreciation pressures, and the Bank of England’s economic outlook—all key factors likely to shape market sentiment and currency trajectories through the near term.  

The U.S. dollar strengthened notably on Friday, drawing strong support from safe-haven demand triggered by escalating geopolitical tensions between Israel and Iran. The Israeli military reported intercepting missiles fired from Iranian territory, while Iran announced it had shot down an Israeli drone near its sensitive Fordow nuclear facility. In response, President Donald Trump acknowledged full awareness of Israel's planned operations but expressed confidence in continued diplomatic negotiations, downplaying fears of a broader regional conflict. Amid the intensified Middle East uncertainty, investors turned defensively toward the greenback, causing Treasury yields to edge upward and significantly pushing WTI crude prices over 7% higher, underscoring market concerns about potential disruptions in global oil supplies. EUR/USD pressured lower, technical outlook remains constructive EUR/USD dropped sharply, hitting an intraday low of 1.1490 as the dollar broadly rallied amid increased risk aversion. However, the currency pair’s losses were partially offset by substantial euro option expiries totaling roughly EUR3.7 billion due Monday and short-lived rebounds in U.S. equity markets, which temporarily steadied investor sentiment. Technically, EUR/USD retained a mildly bullish outlook, managing to stay above its critical 10-day moving average, suggesting underlying resilience. Market participants will closely monitor developments from the upcoming G7 summit, seeking clarity on trade policies and geopolitical stances. Sterling dips but remains range-bound ahead of key events GBP/USD was weighed down by the broader rally in the dollar, but losses remained modest. The pair held within its established range between 1.3334 and 1.3652. UK Prime Minister Keir Starmer discussed the escalating situation in the Middle East with President Trump, urging diplomatic solutions and de-escalation. Looking forward, traders are awaiting crucial UK inflation data and the Federal Reserve's policy meeting next week, both of which could drive meaningful volatility for sterling, particularly given the balancing act between domestic economic pressures and geopolitical uncertainties. Yen gains on safe-haven appeal; USD/JPY faces technical hurdles USD/JPY initially moved higher but subsequently reversed course, retreating below its daily Ichimoku cloud and crucial 21-day moving average as U.S. equity markets declined later in the session. Increased demand for yen-denominated haven assets was driven by heightened geopolitical concerns, while the presence of significant option expiries—totaling nearly $7 billion near the psychologically important 145 level—added complexity to short-term positioning. Technical indicators suggest a critical juncture ahead: resistance at the Ichimoku cloud top at 145.59 must be overcome to restore bullish momentum, while substantial support remains around the 142 area. Commodity markets reflect cautious investor sentiment Gold prices advanced significantly, rising 1.56%, as geopolitical tensions drove investors toward safe-haven assets. Conversely, copper prices slipped modestly by 0.43%, reflecting broader market caution and persistent concerns about global economic growth and industrial demand. With energy markets sharply higher due to Middle Eastern risks, commodities demonstrated a distinctly mixed picture, emphasizing investor uncertainty about near-term market conditions.