The dollar pared sharp early losses on Monday following Moody’s surprise downgrade of the U.S. sovereign rating, as calming remarks from Fed officials restored investor confidence. New York Fed President John Williams emphasized limited investor retreat from U.S. assets, while Vice Chair Philip Jefferson downplayed the ratings action's policy impact. Atlanta Fed’s Raphael Bostic suggested minimal chances for aggressive rate cuts, further stabilizing market sentiment.

Diplomatic Progress Supports Risk Appetite

Markets gained additional optimism from diplomatic breakthroughs. President Trump confirmed Russia and Ukraine would immediately begin ceasefire negotiations, a development warmly welcomed by European leaders Ursula von der Leyen and Volodymyr Zelenskiy. Additionally, Japan’s Nippon Steel proposed a substantial $14 billion U.S. investment pending White House approval, underscoring sustained confidence in U.S. economic prospects.

EUR/USD Gains Capped; Sterling Advances

EUR/USD trimmed earlier highs amid the dollar’s late-session rebound but retained underlying bullish momentum supported by technical factors, notably the 55-day moving average at 1.1085. GBP/USD strengthened significantly, buoyed by the UK's landmark reset of defense and trade relations with the EU, while BOE's Swati Dhingra highlighted inflation risks tied to dollar strength.

USD/JPY Limited by Technical Barriers

USD/JPY remained confined near 145, with technical resistance at the Ichimoku cloud (146.45) firmly capping gains. A mixed U.S. equity session and moderate Treasury yield curve steepening influenced cautious trading.

Commodities Mixed Amid Market Caution

Oil prices eased modestly amid a sharp decline in U.S. natural gas contracts (-6.8%). Conversely, gold rose over 1% on safe-haven demand triggered by the Moody’s downgrade, and copper advanced by 1.46% reflecting cautious optimism around trade and growth expectations.

Market Snapshot:

• EUR/USD up 0.66%
• GBP/USD gained 0.56%
• USD/JPY fell 0.53%
• AUD/USD rose 0.78%
• S&P 500 mixed; gold +1%; oil marginally lower