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Dollar Steady as Investors Eye Israel-Iran Tensions and Fed Outlook

The U.S. dollar held its ground in early trading as global markets remained cautious, closely monitoring the ongoing Israel-Iran conflict while preparing for key signals from the Federal Reserve. With geopolitical risks rising and monetary policy still in focus, the greenback traded in a narrow range against major currencies, reflecting a wait-and-see sentiment across global forex markets.

The dollar index, which tracks the currency against a basket of peers, was little changed around 105.10. Safe-haven demand has offered underlying support for the dollar amid escalating tensions in the Middle East, where the Israel-Iran conflict has entered a volatile phase with the potential to further destabilize the region.

Fed Policy in Focus as Markets Weigh Mixed Signals

Investors are also looking ahead to the Federal Reserve’s upcoming policy decision, expected later this week. While the central bank is widely anticipated to hold rates steady, market participants will be scrutinizing Fed Chair Jerome Powell’s tone for any hints about the timing and pace of future rate cuts.

Recent economic data in the U.S. has painted a mixed picture. While inflation has cooled slightly, job growth and consumer spending remain resilient, leaving the Fed in a delicate balancing act between curbing inflation and maintaining economic stability. The dollar’s stability reflects this uncertainty, with traders hesitant to take strong positions ahead of the Fed’s announcement.

Meanwhile, currencies such as the euro and the yen have remained subdued, with the euro hovering near $1.07 and the yen trading above 157 per dollar. The Japanese yen, traditionally a safe-haven asset, has underperformed despite global risk aversion, as ultra-loose monetary policy in Japan continues to weigh on the currency. Yahoo!Finance

Outlook: Calm Before Potential Market Moves

As the week unfolds, markets are bracing for potential volatility triggered by either a geopolitical flare-up or unexpected policy signals from the Fed. For now, the dollar’s resilience suggests that investors remain cautious but not panicked.

With both the geopolitical and macroeconomic landscape in flux, currency markets are likely to stay reactive and headline-driven. The dollar’s performance in the coming days will depend heavily on whether calm prevails—or fresh uncertainty takes hold. Financial Times

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