Last week, the dollar index remained stable, maintaining its recent gains due to the Federal Reserve's cautious approach towards interest rate cuts amidst ongoing inflation concerns. These gains held up despite occasional geopolitical tensions that led to short-term risk aversion. The British pound was notably weak, impacted by rising global uncertainties, disappointing UK retail sales data, and dovish comments from the Bank of England's Deputy Governor, suggesting a possible softer monetary policy stance. In contrast, the Euro saw minor improvements, supported by the resilience it showed despite tensions in the Middle East, staying above its April lows.

Moving forward, the financial markets are likely to be influenced by several factors. The Bank of England has indicated it might cut rates, which could affect the pound further. In the Eurozone, despite mixed signals from European Central Bank officials, expectations are tilting towards a rate cut in June, with significant monetary easing anticipated by the end of the year. The dollar's direction will largely depend on upcoming U.S. economic data and any additional Federal Reserve comments on inflation and monetary policy adjustments. Geopolitical issues, especially those concerning the Middle East, will continue to impact market sentiment and currency movements.

The Euro/USD pair has shown some strength, recovering from recent lows, helped by tightening yield differences between German Bunds and U.S. Treasuries. The pound has been under pressure due to poor economic data and a greater likelihood of imminent rate cuts by the Bank of England. Meanwhile, the USD/JPY pair has rebounded from its lows amid safe-haven buying due to Middle East unrest but remains below recent peaks, with traders keeping an eye on potential interventions by the Bank of Japan amidst discussions about the yen's valuation.

Market watchers should remain alert to key economic indicators and central bank communications. The upcoming U.S. PCE data is expected to be crucial, possibly overshadowing the Bank of Japan's meeting, where significant policy changes are not expected until perhaps July. This data will be critical in assessing the Federal Reserve's future policy moves, especially concerning inflation and interest rate adjustments.

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