Dollar Falls as US-Iran Strike Truce Revives Before FOMC

Strike truce signals between the US and Iran pull the dollar from monthly highs. Sterling clears mid-1.3300s, euro reclaims 1.1400. FOMC and BoE both decide on rates this week.

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GBP: Sterling Finds Support Before BoE Decision

GBPUSD 1.3334

The pound opened the week on firmer ground, with GBP/USD climbing above the mid-1.3300s as demand for the dollar eased. Fresh hopes that Washington and Tehran could return to negotiations reduced demand for traditional safe-haven assets and encouraged a move back into risk-sensitive currencies.

The move extended Friday's recovery and pushed sterling higher for a second consecutive session. GBP/USD traded around 1.3353 before trading near 1.3330, while EUR/GBP held near 0.8540.

The shift began with geopolitics, but it quickly spread into monetary policy expectations. Reports that President Donald Trump could leave room for further diplomatic discussions prompted investors to trim defensive dollar positions. Lower crude oil prices eased inflation concerns and softened expectations that the Fed would need to tighten policy sooner than expected.

That combination removed one of the dollar's strongest near-term supports and gave sterling room to recover.

The move also reflects positioning ahead of a busy week for central banks. The Fed announces its latest policy decision on Wednesday before attention turns to the Bank of England (BoE) on Thursday. While policymakers on both sides of the Atlantic are expected to leave interest rates unchanged, investors will be watching every statement for clues on the next policy move.

For sterling, domestic policy now becomes the main focus.

The BoE’s Monetary Policy Committee will announce its latest rate decision on Thursday, followed by Governor Andrew Bailey's press conference. Investors will watch for any change in language around inflation, wage growth and the timing of future easing.

Recent UK inflation data has proved more resilient than many policymakers expected, although softer activity indicators continue to argue for gradual policy easing over the coming quarters. That balance leaves sterling sensitive to even small changes in guidance.

The divergence between the BoE and the Fed could shape sterling's next move. If UK policymakers maintain a cautious stance while expectations for future Fed tightening continue to soften, interest rate differentials may provide additional support for GBP/USD. If both central banks deliver similarly cautious messages, sterling could struggle to extend gains beyond recent highs.

For now, geopolitical developments continue to set the tone. Any further progress in US-Iran diplomacy could keep pressure on safe-haven demand for the dollar, while renewed tensions could quickly reverse sentiment.

With two major central bank decisions arriving this week, currency volatility may stay elevated as markets reassess policy expectations and global risk sentiment.

Key Technical levels for the GBP/USD pair: Resistance sits at 1.3400, 1.3450 and Support sits at 1.3280, 1.3220

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EUR: Euro Reclaims Ground Ahead of Key Data

EURUSD 1.1400 | EURGBP 0.8546

The euro gapped higher at the open and reclaimed 1.1400 against the dollar during the Asian session, extending a move that reflects dollar weakness more than euro strength in isolation. The same geopolitical dynamic driving sterling has broadly supported the pair; a weekend ceasefire posture between the US and Iran has pulled safe-haven flows away from the dollar.

The move also highlights how closely currency traders continue to link geopolitical developments with central bank expectations. Lower energy prices reduce inflation pressure across advanced economies. That eases some of the urgency for policymakers to keep borrowing costs restrictive if underlying price pressures continue to cool.

Even so, the euro still faces its own test.

Attention now turns to a series of eurozone releases that could shape expectations for the European Central Bank (ECB) through the second half of the year. Germany's IFO Business Climate and Expectations surveys arrive first, offering another snapshot of business confidence in Europe's largest economy after months of uneven growth.

Later this week, investors will assess eurozone consumer confidence, business climate data and the first estimate of second-quarter GDP. Together, those releases should provide a clearer picture of whether the bloc's recovery continues to gather pace or loses momentum through the summer.

Friday then shifts the focus back to inflation with the release of the preliminary Harmonised Index of Consumer Prices (HICP) for July. Any surprise in the inflation figures could influence expectations around the ECB's next policy steps and reshape interest rate pricing across the region.

For now, the euro continues to take its lead from the dollar rather than domestic developments. The single currency has responded more to changing US rate expectations and geopolitical headlines than to eurozone data over recent sessions. That relationship could persist until investors receive fresh guidance from both the Fed and the ECB.

The balance between European growth prospects and US monetary policy also continues to shape the EUR/GBP pair. While sterling has drawn support from expectations that the BoE may keep policy tighter for longer than some peers, stronger eurozone data later this week could narrow that gap. If incoming figures disappoint, the cross could continue to favour sterling.

The euro's recovery reinforces a familiar theme. When geopolitical tensions ease, and oil prices retreat, safe-haven demand for the dollar often softens. Risk-sensitive currencies tend to recover first, provided domestic data does not challenge that shift in sentiment.

That leaves the dollar at the centre of the story once again. This week's Fed rate decision now carries greater weight because it will test whether changing geopolitical conditions can continue to outweigh policy expectations. The answer has the potential to shape not only the EUR/USD pair but also broader currency trends through the remainder of the week.

Key Technical levels for the EUR/GBP pair: Resistance sits at 0.8570 and Support sits at 0.8510

Key Technical levels for the EUR/USD pair: Resistance sits at 1.1460, 1.1500 and Support sits at 1.1350, 1.1300

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USD: DXY Slides as Diplomacy Cools the Safe-Haven Bid

DXY 101.20

The dollar opened the week on the back foot as geopolitical tensions eased and investors reduced demand for traditional safe-haven assets. The US Dollar Index (DXY) slipped back towards 101.20 after testing a monthly high last week.

US Ambassador to the United Nations Mike Waltz said military forces remained ready, but President Donald Trump wanted to give diplomacy more time and negotiations room to breathe. Those comments encouraged investors to unwind part of the geopolitical risk premium that had supported the dollar through recent sessions.

Oil prices responded just as quickly. Crude fell after signs that both sides could return to negotiations, easing concerns over supply disruption and reducing near-term inflation expectations. Lower energy prices also weakened the argument for tighter US monetary policy, adding another layer of pressure on the dollar.

Shipping risks through the Strait of Hormuz and the Bab el-Mandeb Strait continue to keep energy traders alert. Any disruption across either route could push oil prices higher again and revive inflation concerns. That would likely bring interest rate expectations back into focus and restore some support for the dollar.

For now, however, attention has shifted from geopolitics to monetary policy.

The Fed concludes its two-day meeting on Wednesday. Policymakers are widely expected to leave interest rates unchanged, but the statement, updated projections and Chair Warsh's press conference will carry far more weight than the decision itself.

Recent commentary suggests policymakers still see inflation risks after the earlier rise in energy prices, although many also believe more evidence is needed before considering another rate increase. That leaves the Committee balancing resilient economic data against signs that inflation pressures may continue to moderate.

Some analysts expect a more hawkish tone than the headline decision may suggest. Others believe Chair Warsh will avoid giving explicit guidance and instead reinforce the Fed's data-dependent approach. Reports that Governors Hammack and Logan could dissent would add another layer of interest if confirmed, although consensus still points towards rates remaining unchanged.

Beyond the meeting itself, investors will study incoming US data for confirmation that the economy continues to expand without reigniting inflation.

Second-quarter GDP figures arrive later this week alongside the Core Personal Consumption Expenditures Price Index, the Fed's preferred measure of inflation. Together, those releases could reshape expectations for the remainder of the year and influence the dollar's direction well beyond this week's meeting.

Corporate earnings also return to the spotlight. Strong results would reinforce confidence in the underlying economy, while weaker guidance could revive concerns over slowing growth. Both outcomes carry implications for Treasury yields, risk appetite and demand for the dollar.

Gold has already begun to reflect the changing backdrop. The metal edged higher as the weaker dollar improved its appeal, although gains stayed measured ahead of Wednesday's policy announcement. That cautious price action highlights the broader mood across foreign exchange. Investors appear willing to reduce defensive positioning, but few are prepared to commit heavily before hearing directly from the Federal Reserve.

This combination of softer geopolitical risk, easing inflation expectations and a pivotal central bank meeting leaves the dollar at the centre of global currency pricing. Whether the latest weakness develops into a broader trend will depend less on the rate decision itself and more on how policymakers frame the path ahead.

The FOMC meeting now acts as the next decisive catalyst. Until then, most major currency pairs are likely to take their lead from changing expectations rather than confirmed policy shifts.

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Current Rate Table

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Market lookahead:

Mon, July 27

• Germany’s IFO Business Climate and Expectations (Jul)

Tues, July 28

• US Consumer Confidence (Jul)

Wed, July 29

• Fed Interest rate decision, FOMC Conference

Thurs, July 30

• Germany’s GDP Q2
• Eurozone Consumer Confidence (Jul)
• Eurozone GDP Q2
• BoE Interest Rate Decision, Monetary Policy meeting, BoE Governor Bailey Speech
• Germany’s Consumer Price Index (Jul)
• US Core Personal Consumer Price Index (Jun)
• US GDP Annualised Q2

Fri, July 31

• Eurozone Core Harmonized Index of Consumer Prices (HICP) Inflation figures (Jul)

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