The US Dollar (USD) experienced an impressive rally last week, fueled by growing expectations of a delayed policy shift by the Federal Reserve and escalating geopolitical tensions. After climbing over 1.5% and reaching its highest level since early November, the USD Index has entered a consolidation phase, hovering around the 106.00 mark as of early Monday.This week, the financial markets will closely monitor the NY Empire State Manufacturing Index and Retail Sales data from the US, which could provide further cues on the economic climate and influence the Federal Reserve’s upcoming decisions.

Over the weekend, tensions in the Middle East escalated significantly. Iran launched a series of drone attacks in response to the suspected Israeli attack on Iran’s consulate in Damascus on April 1st. The Iranian Foreign Ministry issued a stern warning, stating, “Iran, if necessary, will not hesitate to take further defensive measures to safeguard its legitimate interests against any military aggressions and unlawful use of force.” In contrast, UN Secretary-General Antonio Guterres condemned the drone attacks as a “serious escalation” and urged all parties to exercise restraint to prevent a regional conflict.

Wall Street saw a sharp decline on Friday, although US stock index futures have shown signs of a modest rebound as the new week begins. The financial markets remain sensitive to both economic data and geopolitical news, influencing trading behaviors and investment strategies.

Gold also responded to the heightened tensions, opening higher and briefly surpassing $2,370 in the Asian session before pulling back below $2,360 by the European morning. Meanwhile, the EUR/USD pair suffered significant losses on Friday, breaking below the 1.0700 level. It has since stabilized around 1.0650 in the early European session, with investors awaiting the release of Eurostat’s Industrial Production data for February.

The GBP/USD pair mirrored this volatility, losing 1.5% last week, marking its largest one-week decline since July, and remained subdued below 1.2500 on Monday.

In Asia, the Japanese Yen has been a focal point of concern. Finance Minister Shunichi Suzuki expressed close monitoring of FX movements and emphasized preparedness in response to the Yen’s broad weakness. The USD/JPY pair closed the previous week decisively higher and continued its ascent early Monday, reaching its highest level in over three decades near 154.00.

As investors and policymakers alike navigate through these turbulent times, the interplay between economic data releases, geopolitical developments, and market dynamics will likely continue to shape the global financial landscape in the days ahead.