Dollar Rebound Continues as Geopolitics Weigh on Risk Sentiment

The US Dollar recovered on Monday after initial optimism about a lull in attacks between the United States and Iran proved short-lived. The EUR/USD pair retreated from an intraday high of 1.1418, trading around 1.1373 as geopolitical risks remained elevated. US officials stressed that military action against Iran had not been ruled out, keeping tensions alive.

The lack of concrete negotiations between the two nations meant that investors were cautious about investing in assets like Oil and the US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies. The DXY traded near 101.46, recovering from an intraday low of 101.12.

The Federal Reserve's interest-rate decision on Wednesday is expected to leave rates unchanged, although traders still price in a 33% chance of a hike. Economists at DBS Group Research noted that the Fed faces a tough call: sticky inflation argues for hikes, but soft demand and muted wage growth support holding rates steady.