The U.S. dollar stabilized on Monday as fluctuating hopes for a deal to end the Middle East conflict kept investors on edge ahead of a series of major central bank meetings this week. Meanwhile, the Japanese yen hovered near the critical 160 level against the dollar prior to the Bank of Japan's upcoming policy decision.

Cautious Optimism Over Talks

Market sentiment improved slightly following reports that Iran submitted a new proposal to the United States via Pakistani mediators. The proposal aims to reopen the Strait of Hormuz and end the war, while deferring nuclear negotiations.

However, analysts believe the nuclear file remains the primary obstacle, as any agreement that does not significantly alter Iran’s nuclear program could be politically costly for President Donald Trump domestically.

Dollar and Oil Dynamics

The dollar benefited from safe-haven flows when the war broke out in March, but it surrendered most of those gains this month as peace expectations rose. It has since stabilized as talks stalled.

- Brent crude futures rose 2.6% to $108 per barrel.

- The U.S. Dollar Index (DXY) fell 0.1% to 98.41.

- A key negotiation point remains Iran's demand for the lifting of economic sanctions.

Central Bank Watch: Fed and Beyond

The Federal Reserve is widely expected to keep interest rates unchanged this week. Chris Turner, Head of FX Strategy at ING, noted that the Fed might signal a need to keep rates "higher for longer," which could provide limited support to the dollar.

The Euro and Energy Exposure

The Euro rose from 1.15 toward 1.18 dollars after the early April ceasefire announcement. However, the Eurozone remains more vulnerable to energy price spikes than the U.S. due to its heavy reliance on oil imports. This puts pressure on the European Central Bank (ECB) to maintain a hawkish tone, even as rates are expected to stay on hold for now.

- The Euro edged up 0.1% to $1.1734.

Japan’s Intervention Risks

The yen rose 0.07% to 159.26 per dollar, remaining close to the 160 threshold that often triggers fears of government intervention.

- The Bank of Japan is expected to keep rates unchanged while signaling a readiness to hike later to combat energy-driven inflation.

- Gregor Hirt, Global CIO at Allianz Global Investors, noted that resuming Japan's rate-hike cycle depends heavily on geopolitical stability and the potential reopening of the Strait of Hormuz in the coming months.

Gold prices rose in the European market on Monday, extending gains for the second consecutive day and moving back above the $4,700 per ounce mark. This recovery is supported by a weakening U.S. dollar and renewed hopes for a diplomatic resolution to the Iranian conflict following reports of a new peace proposal.

Global markets are bracing for a pivotal week featuring meetings from several major central banks, as investors look to gauge the impact of the regional war on inflation and future interest rate trajectories.

Price Overview

- Gold Prices Today: Gold prices rose by 0.45% to ($4,730.13), from an opening level of ($4,709.26), after recording a daily low of ($4,672.26).

- At the close of Friday's trading, gold achieved a 0.35% increase, recovering from a nearly two-week low of $4,664.39 per ounce reached earlier that session.

- Over the past week, gold lost 2.5%, marking its first weekly decline in five weeks due to the escalation of tensions between the U.S. and Iran.

The U.S. Dollar

The dollar index fell by 0.25% on Monday, continuing its slide for the second session and pulling further away from its recent two-week highs. As the dollar weakens, gold becomes more affordable and attractive for buyers holding other currencies.

The retreat in the greenback is driven by improved risk appetite and cooling demand for safe-haven assets. This follows an Axios report stating that Iran—via Pakistani mediators—submitted a new proposal to the U.S. to reopen the Strait of Hormuz and end the war, while deferring nuclear negotiations to a later stage.

Diplomatic Efforts

President Donald Trump stated on Sunday that Iran can "call" if they wish to negotiate an end to the two-month-old war, while reiterating that the country will never be allowed to possess a nuclear weapon. This follows the reported Iranian peace overture, which has injected a dose of optimism into the markets.

Global Central Banks

Market focus this week shifts to a series of high-profile monetary policy meetings:

- Bank of Japan (BoJ): Decisions expected Tuesday; rates likely to remain steady for the third consecutive meeting.

- Federal Reserve (Fed): Monetary policy decisions due Wednesday.

- Bank of England (BoE) and European Central Bank (ECB): Decisions scheduled for Thursday.

U.S. Interest Rates

- Kevin Warsh, a nominee for a senior Federal Reserve role, clarified last week that he has made no promises to Trump regarding interest rate cuts.

- According to the CME FedWatch Tool: The probability of the Fed keeping rates unchanged this week stands at 99%, with only a 1% probability of a 25-basis-point hike.

Gold Performance Expectations

Kyle Rodda, an analyst at Capital.com, noted: "We are currently watching for any progress in the (U.S.-Iran) talks over the coming days, as this will be the biggest driver for the gold price." He added that the Federal Reserve's decision could either support or pressure gold, depending on whether they signal a "hold" for the rest of the year due to the inflationary energy crisis.

SPDR Fund

Gold holdings at the SPDR Gold Trust decreased by approximately 2.57 metric tons on Friday, marking the third consecutive daily decline. Total holdings fell to 1,046.62 metric tons, the lowest level since March 30.

The Euro advanced in the European market on Monday against a basket of global currencies, extending its gains for a second consecutive day against the U.S. dollar. This upward movement is supported by continued buying activity from two-week lows, as the American currency softens following an Axios report suggesting Iran has submitted a new peace proposal to the United States.

The European Central Bank (ECB) is scheduled to meet later this week, with market participants expecting interest rates to remain unchanged while looking for further clues regarding the path of European monetary policy for the remainder of the year.

Price Overview

- Euro Exchange Rate Today: The Euro rose against the dollar by 0.15% to ($1.1732), from an opening price of ($1.1717), reaching a high of ($1.1689).

- The Euro ended Friday's trading up 0.3% against the dollar, marking its first gain in four days as it recovered from a nearly two-week low of $1.1670.

- Over the past week, the Euro lost approximately 0.4% against the dollar, its first weekly decline in a month, triggered by the escalation of tensions between the U.S. and Iran.

 The U.S. Dollar

The dollar index fell by 0.1% on Monday, continuing its decline for the second session and moving further away from its recent two-week highs. This reflects a broader slowdown in the U.S. currency's performance against major rivals.

The retreat in the dollar's strength comes as risk sentiment improves and demand for safe-haven assets cools. According to an Axios report citing informed sources, Iran—through Pakistani mediators—has presented the U.S. with a new proposal aimed at reopening the Strait of Hormuz and ending the conflict, while pushing nuclear negotiations to a later date.

European Central Bank

The ECB is set to convene this Wednesday and Thursday for its third monetary policy meeting of 2026. Markets fully expect the central bank to maintain current interest rates, which would mark the seventh consecutive meeting without a change. 

However, Reuters reported that sources suggest the ECB might begin formal discussions regarding a potential interest rate hike during this week’s session.

European Interest Rates

- Money market pricing for a 25-basis-point interest rate hike by the ECB this week remains stable at less than 20%.

- ECB President Christine Lagarde stated that the bank stands ready to raise interest rates even if the anticipated spike in inflation proves to be short-term.

The Japanese yen rose in the Asian market on Monday against a basket of major and minor currencies, extending its gains for the second consecutive day against the U.S. dollar. The currency is benefiting from a slowdown in the American dollar's levels following an Axios report stating that Iran has submitted a new peace proposal to the United States.

The yen's move into positive territory comes ahead of the Bank of Japan's (BoJ) monetary policy meeting starting later today, where interest rates are widely expected to remain unchanged for the third consecutive meeting.

Price Overview

- Japanese Yen Exchange Rate Today: The dollar fell against the yen by approximately 0.1% to (159.20¥), from today’s opening price of (159.30¥), after reaching a high of (159.60¥).

- The yen ended Friday's trading up 0.2% against the dollar, marking its first gain in five days as it recovered from a nearly two-week low of 159.85 yen.

- Over the past week, the yen lost approximately 0.5% against the dollar, its first weekly loss in a month, driven by escalating tensions between the United States and Iran.

The U.S. Dollar

The dollar index fell by 0.1% on Monday, continuing its decline for the second consecutive session and moving away from nearly two-week highs. This reflects a persistent slowdown in the U.S. currency against global rivals.

The decline in the dollar comes amid improved risk sentiment and cooling demand for the currency as a safe-haven asset, particularly following the Axios report regarding Iran's diplomatic overture. Axios, citing sources, reported that Iran—via Pakistani mediators—submitted a new proposal to the U.S. to reopen the Strait of Hormuz and end the war, while deferring nuclear negotiations to a later stage.

Bank of Japan

The Bank of Japan's third monetary policy meeting of 2026 begins later today, with decisions set to be announced tomorrow, Tuesday. Markets expect the central bank to keep interest rates steady for the third consecutive meeting.

The bank will discuss recent economic developments in the world's fourth-largest economy. Markets are closely watching for any shift in stance regarding interest rates and yield curve control in light of global variables, particularly the repercussions of the Iranian war and high energy prices.

Reuters reported that the BoJ is likely to refrain from hiking rates during this meeting, as the uncertainty surrounding the Middle East conflict continues to cloud the economic and price outlook.

Japanese Interest Rates

- Governor Kazuo Ueda has recently refrained from committing to an April rate hike, citing the war's impact on economic projections.

- Market pricing for a 25-basis-point rate hike at this week's meeting remains stable at 10%, while the probability of a hike at the June meeting is priced at 35%.