USD broadly lower as geopolitics and rate outlook shift

The US dollar opened the new trading week broadly lower against major currencies, reversing much of Friday's sharp gains as geopolitical tensions and a shifting interest rate outlook continued to dominate market sentiment.

The dollar had rallied sharply on Friday after a stronger-than-expected US jobs report and rising energy prices fueled expectations that the Federal Reserve may need to tighten policy. Fed funds futures now price a meaningful probability of at least one rate hike in 2026, while expectations for rate cuts have largely disappeared. However, the tone improved this morning after President Trump posted on Truth Social, helping to ease some geopolitical fears. The USD decline comes despite the hawkish repricing, suggesting that risk sentiment and geopolitical factors are currently outweighing rate differentials. For forex traders, this creates an environment where traditional carry trades may underperform, and safe-haven currencies like the yen and Swiss franc could see renewed demand. NowPrice's real-time fx quotes show the dollar index near session lows, with EUR/USD and GBP/USD recovering from Friday's selloff.

Looking ahead, traders will focus on any further geopolitical developments and central bank commentary. The market's repricing of Fed rate expectations will be tested by upcoming inflation data and Fed speeches. If geopolitical tensions ease further, the dollar could extend its losses, but any escalation could quickly reverse the move. Key levels to watch include the 200-day moving average on the dollar index and resistance in USD/JPY near recent highs.