The U.S. dollar weakened against major currencies on Monday as signs of progress in diplomatic efforts surrounding the Iran conflict encouraged investors to move back toward risk-sensitive assets. The currency move reflects a broader shift in market positioning after last week’s selloff in artificial intelligence-linked stocks, with geopolitical developments and upcoming U.S. inflation data now competing for investors’ attention.

Iran Diplomacy Eases Demand for the Dollar

The dollar index slipped after rising sharply on Friday, while the euro and yen strengthened as concerns about an escalation in the conflict between the United States and Iran eased. The improvement in sentiment followed comments from U.S. President Donald Trump that he was highly unlikely to order fresh attacks on Iran as long as diplomatic discussions continued.

Trump was also due to meet Qatar’s Sheikh Mohammed bin Abdulrahman Al-Thani on Monday as efforts to find a path toward ending the conflict gathered pace. The diplomatic developments reduced some of the immediate demand for traditional defensive assets and encouraged investors to reconsider positions established during last week’s market volatility.

Risk Appetite Returns After Technology Selloff

The currency market’s reaction also reflects changing risk sentiment across global financial markets. Investors had moved toward defensive positions after a sharp decline in artificial intelligence-linked stocks, increasing demand for assets traditionally viewed as more resilient during periods of uncertainty.

As geopolitical risks appeared to moderate, some of that positioning began to reverse. The shift illustrates how currency markets remain highly sensitive to changes in geopolitical expectations, particularly when those developments affect energy markets, global growth expectations and broader risk appetite.

The New Zealand dollar was also a notable mover, gaining after weekend elections provided an additional domestic catalyst. Its performance highlighted the broader improvement in demand for currencies perceived as more closely linked to global economic growth and risk sentiment.

U.S. CPI Becomes the Next Major Market Test

Attention is now turning toward U.S. consumer price inflation data due Tuesday. The report could have a greater influence on the dollar if it materially changes expectations surrounding the Federal Reserve’s interest-rate path.

Inflation remains particularly important because stronger price pressures could reinforce expectations for a more cautious monetary-policy stance, potentially supporting the dollar through higher expected U.S. interest rates. Conversely, evidence that inflation is moderating could reinforce expectations for less restrictive policy and place additional pressure on the currency.

Geopolitics and Rates Drive the Currency Outlook

For international investors, the combination of geopolitical developments and U.S. monetary policy creates a potentially volatile backdrop for foreign-exchange markets. Changes in expectations surrounding the Iran conflict can influence energy prices and risk positioning, while U.S. inflation data can quickly alter expectations for Treasury yields and the dollar.

Going forward, markets will be watching whether diplomatic efforts produce a sustained reduction in geopolitical risk and whether Tuesday’s inflation report confirms or challenges current expectations for U.S. monetary policy. For investors in Israel and globally, the interaction between geopolitical risk, U.S. inflation and currency positioning will remain important in assessing broader financial-market conditions in the weeks ahead.