Global risk sentiment stayed slightly positive early Monday, though momentum remained weak. Markets weighed rising geopolitical risks from the Iran–Israel conflict against optimism over Federal Reserve rate cuts, even as Treasury bond yields stayed elevated.
In U.S. monetary policy news, The Wall Street Journal reported on an interview and podcast with Cleveland Federal Reserve President Loretta Mester, not Beth Hammack. She pushed back against recent dovish expectations, saying she favours holding interest rates steady for several months. Hammack said she is more concerned about inflation than labour-market weakness and added that November’s Consumer Price Index (CPI) likely understated true inflation pressures.
Earlier, New York Federal Reserve President John C. Williams said monetary policy remains “mildly restrictive” but has room to return to neutral. Williams, a permanent voting member of the Federal Open Market Committee (FOMC), surprised markets by supporting the December rate cut. His comments were mildly dovish and weighed on the U.S. dollar.
The U.S. economic calendar was light on Friday. Existing Home Sales for November came in at 4.13 million on a month-over-month (MoM) basis, slightly below market forecasts of 4.15 million but above the revised prior reading of 4.11 million. The University of Michigan (UoM) Consumer Sentiment Index for December eased to 52.9 versus forecasts of 53.5 and a prior reading of 53.3. One-year Consumer Inflation Expectations rose to 4.2% from the preliminary estimate of 4.1%.
Geopolitical tensions rose after Israel raised concerns with the Trump administration over recent Iranian missile activity. Israeli and U.S. officials said an exercise by the Islamic Revolutionary Guard Corps may be making preparations for a potential strike on Israel.
Currency markets saw sharp moves on Friday. The U.S. dollar made modest gains overall, but the biggest move was in the Japanese yen. The rally began after an initial dip following the Bank of Japan (BOJ) interest rate hike decision. The move prompted intervention warnings from Japan’s Finance Minister Katayama, though these had limited impact. A brief 40-pip dip was quickly bought, and USD/JPY closed at session highs.
In Europe, European Central Bank (ECB) Chief Economist Philip Lane presented charts on the eurozone economy at a Confederation of British Industry (CBI) workshop. Although the ECB Governing Council has signaled that 2.00% is the neutral interest rate, Lane’s presentation showed an economy struggling to gain momentum, suggesting policy easing may be nearing an end despite weak growth.
In Canada, headline retail sales were soft, but the advance estimate for November was strong at +1.2%.
Japanese markets led early-week moves. The Nikkei 225 rose alongside other regional equities, supported by earlier yen weakness that boosted exporters by improving foreign-currency earnings. Japanese government bond yields edged higher, often linked to stability concerns, but markets largely shrugged off the move.
Later in the session, the yen recovered some ground. USD/JPY pulled back from around 157.75 to near 157.25 after verbal intervention from Japan’s top currency diplomat, Atsushi Mimura. Mimura said authorities were concerned about “one-sided and sharp” foreign-exchange moves and warned that appropriate action would be taken against excessive volatility. The comments prompted some trimming of short-yen positions.
Oil prices firmed in early Asian trading on Monday as geopolitical risks increased. Over the weekend, the United States intercepted a Venezuelan oil tanker and tightened sanctions enforcement, while tensions between Israel and Iran remained elevated. Together, these developments rebuilt a modest risk premium in crude, with supply-side risks outweighing near-term demand concerns.
Amid these developments, the U.S. Dollar Index (DXY) eased after posting its first weekly gain in four weeks. Gold prices hit a fresh all-time high near $4,400. EURUSD, GBPUSD, AUDUSD, and NZDUSD edged higher after a weak week, USDCAD softened slightly, and USDJPY pulled back from a one-month high after its biggest daily rise in 11 weeks. West Texas Intermediate (WTI) crude oil rose about 1.0%, extending Friday’s rebound, cryptocurrencies edged higher, and Asia-Pacific equities followed a firmer Wall Street close.
The U.S. dollar retreats as European Central Bank (ECB) Chief Economist Philip Lane pushes back against the need for further rate cuts, helping EURUSD snap its four-day downtrend.
GBPUSD also recovers on the softer U.S. dollar and growing expectations that the United Kingdom could overcome recent economic pessimism, supported by the Bank of England (BoE) rate cut and improving British trade ties with major economies.
Meanwhile, USDJPY comes under pressure after posting its biggest daily jump in 11 weeks. Verbal intervention from Japanese officials, a hawkish move by the Bank of Japan (BoJ), and mixed market conditions weigh on the pair. The recent upside in USDJPY appears linked to market expectations of stronger BoJ interest rates in 2025.
Amid a quiet data calendar, worries over Federal Reserve rate cuts in 2026 and hopes that China can overcome economic fears support a recovery in AUDUSD and NZDUSD. At the same time, USDCAD eases as crude oil prices, Canada’s key export, hold onto Friday’s rebound, supported by Middle East developments over the weekend.
A pullback in the U.S. Dollar and mixed risk news, as well as a technical breakout, propel the gold price to post an all-time high. Adding strength to the precious metal is the growing institutional demand and the year-end consolidation. With this, the XAUUSD is likely to end 2025 with more than 60% yearly gains.
WTI crude oil extended Friday’s gains as geopolitical risks rose, with Iran’s potential strike on Israel and the U.S. interception of a Venezuelan oil cargo, supported by declining inventories.
Equities saw solid gains despite $7.1 trillion in options expiry. E-mini futures closed just below 6800. Nvidia led winners, along with travel and semiconductor memory stocks, while Nike fell about 10% on tariffs.
Hedge fund manager Bill Ackman proposed taking SpaceX public without traditional banks or IPO fees, giving Tesla shareholders priority access.
The Ethereum Foundation released a roadmap for zero-knowledge Ethereum Virtual Machines (zkEVM), focusing on provable security over speed, enhancing institutional appeal but slowing near-term experimentation.
Major banks see Bitcoin’s 2026 outlook driven by exchange-traded fund (ETF) adoption, regulatory clarity, and institutional tokenisation, with forecasts placing it firmly in six-figure territory.
Given the holiday mood and cautious optimism, traders may see a continuation of Friday’s modestly positive sentiment. Monday’s calendar includes the final reading of the UK Q3 GDP, Canadian price data, and the Chicago Fed National Activity Index, but focus will be on Tuesday’s preliminary U.S. Q3 GDP figures.
Geopolitical tensions between Israel and Iran, combined with Fed policy expectations and Trump-related updates, may add volatility during a typically quiet, Christmas-shortened week. With year-end consolidation and a lack of major data, the U.S. dollar could see further recovery, while cryptocurrencies and equities are likely to remain stable, supporting a slightly positive close to 2025. That said, Gold is likely to remain firmer, while crude oil could face mild gains.
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