The U.S. dollar edged lower on Monday as investors monitored developments in the Israel-Iran conflict and looked ahead to a packed week of central bank meetings, including the Federal Reserve’s highly anticipated decision.

As of 04:15 ET (08:15 GMT), the U.S. Dollar Index—measuring the greenback against a basket of six major currencies—was down 0.2% at 97.540, paring gains made late last week.

Dollar Retreats After Safe-Haven Spike

The dollar had strengthened at the end of last week as heightened geopolitical risks drove safe-haven demand, especially following Israel’s strike on Iranian targets. Oil prices surged in tandem. However, tensions appear to have stabilized somewhat, with Iran keeping the Strait of Hormuz open and fears of broader regional escalation receding. This has led to a gradual unwinding of the dollar’s earlier gains.

“This is another sign of the market’s ongoing distrust in the dollar,” analysts at ING noted. “Even typically dollar-positive events—like an oil price shock paired with geopolitical stress—have failed to reverse the sustained USD-short positioning we’ve observed in recent months.”

Fed Expected to Hold Steady

The Federal Reserve concludes its two-day policy meeting on Wednesday and is widely expected to keep rates unchanged at 4.25%–4.50%. The recent uptick in oil prices gives the Fed additional cover to resist pressure—particularly from the White House—for immediate rate cuts.

“Volatility in energy markets could allow the Fed to push back against President Trump’s calls for cuts, while it assesses the broader inflation impact from tariffs,” ING added.

Markets will also be watching for any signs of progress on trade negotiations during the upcoming G7 summit in Canada. Ongoing uncertainty around global trade has weighed heavily on the dollar, which is down more than 9% year-to-date.

Euro Gains Ground

The euro continued to attract demand, with EUR/USD rising 0.2% to 1.1578. The single currency has gained over 11% this year amid growing investor interest, sparking debate about its potential to challenge the dollar’s dominance. However, ECB Vice President Luis de Guindos downplayed that notion, stating that any such shift is unlikely in the near term.

Pound Edges Higher Ahead of BoE Decision

GBP/USD inched up 0.1% to 1.3585 as traders await the Bank of England’s policy decision on Thursday. The BoE is expected to hold rates steady after a 25 basis point cut in May, as it contends with a weak growth outlook, rising jobless claims, and still-elevated inflation.

Mixed Central Bank Outlooks in Europe

The Norges Bank is also expected to keep rates unchanged this week, while Sweden’s Riksbank is seen leaning toward a rate cut. Meanwhile, the Swiss National Bank could potentially reintroduce negative interest rates in response to a strong franc and recent deflationary data.

Yen Stable Ahead of BoJ, China Data Mixed

In Asia, USD/JPY ticked up 0.1% to 144.26, with the yen losing ground after recent safe-haven inflows. The Bank of Japan meets Tuesday and is expected to hold rates steady, though markets are closely watching for any signals regarding the future of its bond-purchase tapering plans.

In China, USD/CNY dipped slightly to 7.1797 after mixed economic data. Industrial output for May came in below expectations, as export demand remains pressured by elevated U.S. tariffs. However, retail sales surprised to the upside, buoyed by public holidays and strong online shopping activity—offering a rare bright spot for China’s consumer sector.

The People’s Bank of China is expected to leave its loan prime rate unchanged later this week, following a cut earlier this year.