The dollar index slipped on Monday, pressured by declining Treasury yields and a risk-off tone in markets. Concerns over China’s advancements in AI technology, particularly the rise of Chinese AI startup DeepSeek, dampened sentiment after news emerged of a cyberattack temporarily limiting the company’s registrations. Treasury yields fell by 7 to 10 basis points, with the 2s-10s curve flattening slightly to +33.7bp following a strong 5-year auction. Despite broader caution, U.S. new home sales exceeded expectations, and the Dallas Fed manufacturing index showed improvement in January, highlighting areas of resilience in the U.S. economy. Focus now turns to midweek events, including tech earnings, the Federal Reserve’s policy decision on Wednesday, and Q4 GDP figures. The Fed is widely expected to hold rates steady at 4.25%-4.5%.

Euro Retreats After Brief Rally

The euro pared gains after touching a 1.5-month high of 1.0535, briefly crossing its 20-day upper Bollinger band before retreating. Traders remain cautious ahead of the European Central Bank’s (ECB) anticipated 25 basis point rate cut on Thursday, which could weigh on the euro’s bullish momentum. A rise above 1.06 would indicate further upside potential, while nearby support at 1.0450 offers a safety net.

Pound Steady Amid Lack of Major Drivers

GBP/USD traded relatively unchanged, edging up 0.05% as political developments, including British Prime Minister Keir Starmer’s agreement to meet U.S. President Donald Trump, had little market impact. With a quiet U.K. data calendar this week, the pound is likely to move in line with month-end flows and broader U.S. risk dynamics.

Yen Gains on Risk Aversion and Falling U.S. Yields

The yen strengthened broadly, with USD/JPY dropping 1.04%, falling below its daily cloud top at 153.88. Downward momentum in the pair stalled as yen volatility eased, but USD/JPY remains bearish unless it can surpass its 55-day moving average at 154.97. Japanese markets now await services PPI data on Tuesday for further insights into the Bank of Japan’s policy direction.

Commodity Currencies Under Pressure Amid Weak Chinese Data

Commodity-linked currencies struggled as weaker risk sentiment and falling commodity prices weighed on performance. AUD/USD dropped 0.49%, pressured by weak Chinese manufacturing data and declining equity markets ahead of the Lunar New Year holiday.

Commodities Reflect Broader Risk Dynamics

• Oil: Fell 2.3% on demand concerns stemming from weak Chinese data and broader risk-off sentiment.
• Copper: Dropped 2.5%, reflecting reduced industrial demand expectations.
• Gold: Slipped 1.2%, pressured by a stronger dollar and fading haven demand as markets recalibrated ahead of key Fed decisions.

Currency Market Summary: Cautious Positioning Ahead of Key Events

• EUR/USD: Down 0.08%, reflecting modest profit-taking after earlier gains, as traders prepared for the ECB’s rate decision.
• USD/JPY: Fell sharply by 1.04%, driven by yen strength amid risk aversion and declining U.S. yields.
• GBP/USD: Edged slightly higher by 0.05%, with limited movement amid a quiet U.K