The geopolitical backdrop in the Middle East remained tense after renewed threats to Iranian infrastructure from President Donald Trump, although reports of a potential deal could limit the demand for the dollar.
Escalating geopolitical risk continued to dominate global markets' concerns, with safe-haven demand keeping the dollar index anchored near a multi-week high.
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Look, investors didn't get what they wanted to hear last night. I think that it was pretty straightforward that there were a lot of people buying stocks, betting that this was going to be the official wind-down. Not more bombing.
The tensions between the United States and Iran have pushed oil prices higher, raising fears of energy-driven inflation, which helped support both the dollar and Treasury yields. The 10-year yield has climbed to its highest level in roughly two weeks.
The expectations of a decrease in tensions triggered a pullback in oil prices, which in turn softened immediate concerns about inflation pressures. However, the broader geopolitical backdrop remains fragile, and any renewed escalation could quickly push oil prices, the dollar, and Treasury yields higher again.
Elevated oil levels are reinforcing concerns that inflation could remain sticky, reducing the likelihood of near-term monetary easing by the Federal Reserve, weighing on gold in the process. ETF outflows over recent weeks reinforce this shift in sentiment, and could weigh on the market if they continue.
The dollar stabilised to a certain extent today after retreating in the prior session, but could remain relatively volatile as markets react to geopolitical developments in the Middle East. Treasury yields were firmer following a pullback on Monday as well.
USDJPY is no longer a one-sided story of USD strength. It has become a tug-of-war between two safe-haven currencies amid escalating geopolitical tensions and shifting monetary policies. This dynamic has widened volatility ranges and made the overall trend less stable.
EUR/USD has continued its downward trend since peaking around 1.2080 at the end of January, as the divergence in economic prospects between the United States and the Eurozone has become increasingly evident. This movement reflects the current macroeconomic landscape, where the US dollar remains supported by relatively stable growth and inflation that is still above target, while the Eurozone faces slower expansion and lacks sufficient policy momentum to trigger a meaningful shift in expectations.
The Federal Reserve held rates steady at 3.5% to 3.75% on January 28, 2026, and Bitcoin ( ) now faces a critical support test. The Bitcoin price is consolidating near key support levels, with volatility compressing in a way that often precedes sharp moves in either direction. Powell struck a neutral tone, describing the economy as on "firm footing" while noting inflation "remains somewhat elevated."
