US Dollar Index (DXY) retreats further below 102.00 as risk appetite strengthens

• Monday sees the US Dollar Index decline by almost 0.4%, with intraday lows falling below 102.00.
• Hopes of renewed US-Iran peace talks prompt investors to sell safe-haven assets, including the US Dollar.
• Expectations that the Fed will raise rates in December are likely to limit the US Dollar’s downside.

A decline of nearly 0.4% takes the US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, to session lows below 102.00 on Monday. The safe-haven US Dollar (USD) is the weakest of the major currencies as improving sentiment supports currencies perceived as riskier. Negotiations towards peace in the Middle East appear to be advancing, while Oil prices have fallen close to two-month lows.

The week has begun with an improvement in investor sentiment. By lunchtime, leading European stock markets are up between 0.7% and 1.4%, while Wall Street futures point to a positive opening. Lower Oil prices have helped counter market concerns over excessive AI financing, at least for the time being.

Renewed diplomatic push seeks to bring US and Iran back to talks

Support for the US Dollar is also weakening amid reports of stepped-up efforts to bring US and Iranian negotiators back to the table. According to Reuters earlier on Monday, Qatari Prime Minister Sheikh Mohammed bin Abdulrahman Al-Thani is due to meet US President Donald Trump and Vice President JD Vance at the White House later in the day to discuss progress in the negotiating process to date.

Risk appetite received a further boost on Sunday from Trump, who said he was highly unlikely to order fresh attacks on Iran while efforts to end the conflict remained under way.

Strong US employment figures have consequently moved out of the spotlight. Nevertheless, last Friday’s robust Nonfarm Payrolls (NFP) report, together with growing expectations of a Federal Reserve (Fed) rate rise in December, is likely to limit the USD’s losses. In this context, Tuesday’s US Consumer Price Index (CPI) release is likely to attract particularly close scrutiny.

The latest spell of US Dollar strength could subside if markets stabilise and yields decline, according to strategists at ING. They argue that “unless risk sentiment remains poor this week, lower front-end US rates should favour a weaker Dollar, even if inflation tomorrow comes in slightly hotter than expected,” pointing to scope for the currency’s recent gains to fade.