* Iran conflict rages on, Trump slams NATO allies

* Dollar softens for second straight session ahead of central bank meetings

* Treasury yields edge lower amid high oil, Iran tensions and Fed decision

* Stocks strike optimistic tone with Tech again leading

FX: USD fell for a second straight day, moving further away from resistance at the November 2025 top at 100.39. Risk sentiment has improved at the start of the week with oil prices steadier, resulting in a correction in the recent gains dollar across the board. Optimism around oil flows through the Strait of Hormuz has been evident though the new Supreme Leader apparently rejected peace proposals. The recent fade in Fed easing expectations appears to be reversing, leaving the buck vulnerable to a renewed erosion in support offered by interest rate differentials. The 10-year Treasury yield is back to its 200-day SMA at 4.19% ahead of the FOMC meeting. Trump said much but said they will leave in the near future.

EUR rose for a second day in a row with German government bond yields sliding. We got disappointing German business investor sentiment data. But focus is obviously on the Middle East, plus central bank action (or more correctly words) with the FOMC and ECB meeting. The 200-day SMA sits way above at 1.1673.

GBP gained versus the dollar as cable climbed back to a major Fib retracement level (61.8%) of the November to January move higher at 1.3338. The midpoint of that sits above at 1.3439 with the 200-day SMA at 1.3435. A downward trendline from that November top comes in around the 100-day SMA at 1.3393. There has been little UK news flow though there is some focus on US-UK deteriorating relations.

JPY strengthened modestly as the major slipped away from recent highs just below 160. Overnight, Japan’s finance minister Katayama said the recent JPY weakening, where USD/JPY on Friday was at the highest level since 2024, is not in line with fundamentals and hinted at possible intervention.

AUD was the top performer of the majors after the RBA’s expected second consecutive hike in this tightening cycle. A split voting decision initially saw some disappointment and selling but that was somewhat at odds with the Governor’s hawkish press conference. She said inflation risks were to the upside and markets priced in around 45bps of hikes for the rest of 2026. We note stretched long positioning, which likely requires a flow of positive news to fuel short-term rallies. A long-term high sits at 0.7157 with the recent top just above at 0.7187.

US stocks: The S&P 500 added 0.25% to close at 6,716, the Nasdaq was 0.51% higher at 24,780 and the Dow Jones settled higher by 0.1% at 49,994. The Dow again underperformed after it was the only major index to touch the 200-day SMA at 46,485 on Friday. Financials, Communication Services, Consumer Discretionary and Energy were the leading sectors with just three in the red – Health, Consumer Staples and Utilities. Morgan Stanley said default rates in private credit could rise to 8% as AI disruption continues to pressure software sector. Nvidia’s CEO Huang held his keynote address at GTC where he sees $1 trillion Blackwell & Rubin sales by 2027. Amazon CEO says AI is to double AWS sales to $600bn by 2036; previously estimated at $300bn.

Asian stocks: Futures are mixed. APAC stocks were also mixed with initial buying offset by a mild rebound in oil prices. The ASX 200 saw gains in financials and miners beat losses in tech. The mildly hawkish RBA hike capped further upside. The Nikkei 225 briefly moved above 54,000 but the oil bounce modestly hurt the mood. The Hang Seng and Shanghai Composite were mixed with Hong Kong helped by consumer stocks while the mainland lagged on news the Trump-Xi end of month summit would be delayed.

Gold printed another tiny doji candle as bugs waited for the FOMC meeting today and ultimately to see if yields might continue easing. Bullion is trading around $5,000 at present with the 50-day SMA just below at $4,952.

Day Ahead – FOMC and BoC Meetings

The Fed will sit on its hands leaving rates at 3.5-3.75%. The war-driven energy price surge will be key for officials, as the recent negative NFP print sees stagflation risks rise. We get fresh, updated dot plots and this is Chair Powell’s penultimate FOMC meeting. Those projections will likely show higher inflation and lower growth, with a clear risk that the December median forecast of one rate cut for this year gets pushed back into 2027. The tone of the statement, and any Chair‑elect Warsh headlines will be of interest. Watch also the press conference and whether the Fed risks “higher for longer” into a slowing jobs market. A hawkish tilt could lift the dollar and front‑end yields again, while any hint of concern about stagflation would support gold and may pressure equities. Officials may just say they want more time to assess price developments.

The Bank of Canada is widely expected to hold rates at 2.25% as weak jobs data and easing core inflation argue against near‑term hikes. Markets will watch how policy makers link softer domestic data to tariff and trade uncertainty plus Middle East risks. now see the first 25bp move only around October, with traders

Chart of the Day – EUR/USD finds support

The energy supply shock is dominating financial markets and has had an outsized and positive impact on the dollar. But a recent relative calming in Middle East tensions, at least compared to the start of the conflict, is seeing a pullback in dollar gains. This week’s meetings will be all about signals and bank’s reaction functions. Rate hikes have been priced into bond markets, so it will be up to central bankers to determine if rising energy prices will have a temporary impact on prices and they can look through the spikes with limited pass through to core inflation. The world’s most traded currency pair dipped to lows last seen in the summer but didn’t quite break the early August bottom at 1.1391. Prices have recently rebounded above the November low at 1.1468. The first minor fib level of the recent February to March move sits at 1.1569.