The U.S. dollar edged lower on Monday after posting modest gains last week, as cautious market sentiment and rising geopolitical tensions weighed on risk appetite. Currency markets remained largely subdued in Asia, showing little reaction after the People’s Bank of China left its key benchmark interest rate unchanged, a move that was widely anticipated by investors.
Pressure on the dollar came amid heightened global uncertainty, with fresh concerns over strained relations between the United States and Venezuela, alongside renewed fears of escalating hostilities between Israel and Iran. These developments prompted traders to remain defensive, limiting demand for risk-sensitive assets and curbing further upside in the greenback.
Despite Monday’s pullback, the dollar had found support last week following softer U.S. inflation data that failed to convince markets the Federal Reserve would deliver additional interest rate cuts in the near term. Investors are now turning their attention to December’s inflation report, which analysts believe will play a more decisive role in shaping expectations around future Fed policy and U.S. interest rates.
The Japanese yen strengthened slightly, recovering from recent weakness as government officials reiterated warnings against excessive currency volatility. The USD/JPY pair slipped around 0.2% to trade near 157.45, hovering close to levels not seen since January. Japan’s top currency diplomat, Atsushi Mimura, said authorities stood ready to take “appropriate” action if market moves became disorderly, lending short-term support to the yen.
However, broader concerns continue to weigh on the Japanese currency. The yen has steadily weakened in recent weeks amid worries over Japan’s fiscal outlook and ongoing diplomatic tensions with China. Even after a recent interest rate hike and more hawkish tone from the Bank of Japan, markets were disappointed by the lack of clearer guidance on policy normalization.
Elsewhere, the euro gained modestly, with EUR/USD rising about 0.2%, while the British pound outperformed other major currencies, climbing roughly 0.35% against the dollar. Overall, foreign exchange markets remain sensitive to central bank signals, inflation data, and geopolitical developments that continue to shape global risk sentiment.


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