Tensions between Israel and Iran have escalated sharply after Israel launched pre-emptive strikes on Tehran’s nuclear facilities, drawing global attention and shaking market sentiment. This boosted demand for traditional safe-haven assets such as the US Dollar, Japanese Yen (JPY), Swiss Franc (CHF), and Gold (XAUUSD). However, the US Dollar lacks strong upward momentum as traders remain cautious ahead of Wednesday’s Federal Open Market Committee (FOMC) monetary policy decision.
Adding pressure to the US Dollar are concerns over possible US involvement in the Israel-Iran conflict and renewed trade tensions with major global economies, triggered by Trump-era policies. These concerns are significant as the G7 meeting in Canada approaches this week. Despite the uncertainty, strong US economic data is keeping some support under the Dollar. The University of Michigan Consumer Sentiment Index reached a four-month high, and one-year consumer inflation expectations were also strong. This fuels hopes of a hawkish pause from the Fed at the upcoming FOMC, limiting the downside for the Dollar.
Israel described Iran’s recent missile strikes as the heaviest since the conflict began. In response, Iran has spoken to global counterparts, defending its refusal to negotiate with the US, saying it will not yield to military pressure over its nuclear program. Meanwhile, a noticeable increase in US aircraft movements toward Europe suggests a possible major airlift, though no official details have been confirmed. At the same time, former President Trump appears to have shifted toward stronger support for Israel, while Russian President Putin continues to play a diplomatic role.
In Asia, tensions between the US and China are escalating again as Beijing blocks the export of rare earth metals, which are essential for US weapon systems. This move adds pressure to already fragile US-China trade talks, despite the Geneva deal. A spokesperson from China’s National Bureau of Statistics (NBS) also commented that the country’s economic recovery remains unstable and needs stronger support.
Earlier today, China released mixed economic data. New home prices saw their steepest decline in seven months, industrial production dipped slightly, but retail sales posted solid growth. Meanwhile, speculation is growing that the Bank of Japan (BoJ) might halve the pace of its Japanese Government Bond (JGB) tapering. In the UK, home asking prices dropped significantly, while in New Zealand, economists remain optimistic about a rebound in economic growth by 2026 despite a weak Services PMI reading.
Against this backdrop, the US Dollar Index (DXY) remains on the defensive, struggling to maintain Friday’s recovery from a 39-month low. Gold prices continue to fluctuate near key resistance levels. Crude oil surged to a five-month high before giving up some gains. Most major currencies, including the Antipodeans, are under pressure after losses against the US Dollar on Friday. Meanwhile, Bitcoin (BTCUSD) and Ethereum (ETHUSD) are also paring last week’s gains. Global equities are trending lower, and bond yields are moving higher.
EURUSD stays under pressure for a second straight day as ECB officials continue to highlight geopolitical risks, economic uncertainty, and trade war fears. Adding to the Euro’s weakness are fresh signs of US military movement, including an airlift and a platoon reportedly heading toward Europe. Expectations of a hawkish pause by the Fed at Wednesday’s policy meeting also weigh on the Euro.
Meanwhile, GBPUSD remains fragile but avoids deepening Friday’s losses, even after weak UK home asking price data. This resilience may be due to optimism over Britain’s trade negotiations and market consolidation ahead of this week’s policy decisions from both the Fed and the Bank of England.
USDJPY trims last week’s losses and trades slightly higher at press time, supported by speculation that the Bank of Japan may cut its Japanese Government Bond (JGB) tapering pace, amid growing domestic and global challenges. Still, the Yen’s safe-haven appeal and expectations of a hawkish BoJ limit the pair’s upside.
The Australian, New Zealand, and Canadian Dollars remain mostly weak, although the Canadian Dollar finds some support from stronger Crude Oil prices—Canada’s key export—and growing optimism over a US-Canada trade deal ahead of this week’s G7 summit. However, mixed economic data from China and ongoing trade and geopolitical tensions continue to weigh on AUD, NZD, and CAD demand. As a result, AUD/USD and NZD/USD are attempting to recover after suffering their biggest daily drops in two weeks, while USD/CAD stays under pressure near its lowest level since October 2024.
WTI Crude Oil pulls back slightly from a five-month high but still holds modest gains at press time after marking its biggest weekly rise since early October 2022. The bullish momentum continues, driven by fears of major supply disruptions from the Israel-Iran conflict and reports of OPEC members resisting calls to boost output. Adding to the upward pressure are doubts over Trump’s ability to revive the “Drill Baby Drill” policy and China’s signals of more economic stimulus, both of which support the positive outlook for oil.
Gold prices test the $3,435–$3,445 resistance zone, which stands as the gateway to fresh record highs. Demand for safe-haven assets remains strong amid rising geopolitical and trade tensions, while the US Dollar struggles to gain momentum. Additional support for gold comes from record levels of ETF inflows and strong central bank buying, despite some market indecision.
Meanwhile, Bitcoin (BTCUSD) and Ethereum (ETHUSD) show mixed performance. Bitcoin posts mild gains after a weekly loss, while Ethereum holds onto its recent gains. Market sentiment appears to be shifting in favor of Ethereum, supported by on-chain signals and growing uncertainty around the broader Bitcoin industry.
After a round of mid-tier data from Japan, the UK, New Zealand, and Switzerland, the focus now shifts to Monday’s release of the New York Empire State Manufacturing Index. Still, the main spotlight this week will be on major central bank decisions from the BoJ, SNB, BoE, and the Fed, alongside key data from the US (Retail Sales), UK (Inflation), and Australia (Jobs). Developments from the G7 summit and the ongoing Israel-Iran conflict will also be closely watched.
Overall, risk aversion is expected to persist, which may support Crude Oil and traditional safe-haven assets. However, if the Fed maintains a hawkish stance, the US Dollar could strengthen further, potentially weighing on commodities and Antipodean currencies. In this environment, cryptocurrencies may remain under pressure, equities could trim their weekly gains, while bond yields are likely to stay firm.
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