In the Week Ahead: Fed Decision, Big Tech Earnings and Key Data in Focus

EUR/USD started the week on a firmer footing, climbing back above the 1.1400 level as renewed hopes for a diplomatic resolution to the US-Iran conflict weighed on the safe-haven US Dollar.

Improving geopolitical sentiment triggered a sharp decline in oil prices, easing concerns over inflationary pressures and reducing expectations for further Federal Reserve tightening. This added further pressure on the Greenback, with the US Dollar Index retreating from recent highs.

The pair’s upside, however, remains limited as traders adopt a cautious stance ahead of the Federal Reserve’s policy decision on Wednesday.

The US paused its bombing campaign against Iran late last week after nearly two weeks of strikes, while diplomatic efforts gained momentum. The shift in tone boosted market sentiment and reduced demand for traditional safe-haven assets, including the US Dollar.

The FOMC is widely expected to keep interest rates unchanged at this week’s meeting, although it highlighted that rising oil prices have strengthened the case for a more hawkish policy stance. The bank noted that while hawkish momentum is building, further evidence may be needed before gaining broader support within the committee.

Beyond the Fed decision, traders will continue monitoring developments in the Middle East, with any renewed escalation potentially restoring demand for the US Dollar and influencing the near-term direction of EUR/USD.

Gold extended its recovery for a second consecutive session on Monday, trading around the $4,100 level as easing geopolitical tensions and a sharp decline in oil prices reduced concerns over inflation and further interest rate increases.

The pause in US-Iran military strikes improved market sentiment and triggered a sell-off in crude oil prices, lowering expectations that higher energy costs could fuel renewed inflationary pressures. This weighed on US rate hike bets and provided additional support for the non-yielding precious metal.

Geopolitical developments remain a key driver for gold prices. The US suspended its bombing campaign against Iran late last week after nearly two weeks of strikes, while Tehran indicated it would hold back retaliatory actions as long as the pause continues. The improved diplomatic outlook reduced demand for traditional safe-haven assets, although uncertainty surrounding the conflict continues to limit downside risks for gold.

Looking ahead, traders will closely monitor the Federal Reserve’s policy guidance, with any shift in expectations for future rate moves likely to influence both the US Dollar and gold’s near-term direction.

Oil prices fell sharply at the start of the week, dropping more than 5% as a pause in US-Iran military strikes reduced fears of further escalation and encouraged investors to unwind the geopolitical risk premium built into crude prices.

Brent crude briefly slipped below the $90 level before recovering slightly, while WTI also moved lower as markets reacted to improving diplomatic prospects between Washington and Tehran. The decline followed last week’s surge, when concerns over disruptions to Middle Eastern energy supplies pushed Brent close to the $100 mark.

The US decision to pause its bombing campaign after nearly two weeks of strikes, combined with Iran’s decision to hold back retaliatory attacks as long as the pause remains in place, boosted hopes that negotiations could resume. Reports that China was also attempting to help revive stalled talks added to optimism that tensions could ease.

Despite the sharp pullback, traders remain cautious as shipping disruptions continue across key energy routes. Reduced traffic through the Strait of Hormuz and ongoing risks around the Red Sea and Bab el-Mandeb Strait continue to threaten global supply flows.

Analysts noted that the market has so far managed to absorb supply disruptions through lower Chinese crude imports, emergency stock releases, and alternative export routes. However, these buffers could become increasingly limited if shipping risks persist or tensions escalate again.

Oil prices are likely to remain highly sensitive to further developments in the Middle East, with any breakdown in diplomatic efforts potentially restoring the risk premium and triggering renewed gains.

US stocks closed mixed on Friday as investors digested easing oil prices and gains in defensive sectors, while weakness in semiconductor shares limited broader market momentum. Despite the late-week recovery, Wall Street recorded weekly losses as geopolitical risks, artificial intelligence spending concerns, and renewed trade tensions pressured investor sentiment.

The ongoing US-Iran conflict remained a key driver of market volatility, with investors monitoring diplomatic efforts and the potential impact on global energy supplies. Any escalation that threatens major oil transit routes could quickly revive inflation fears and pressure risk assets.

Beyond geopolitics, concerns surrounding the artificial intelligence sector continued to weigh on technology stocks. Investors questioned whether massive AI-related capital spending by major companies will generate sufficient returns, with recent results from Alphabet and Tesla failing to fully ease those concerns. Alphabet’s increased AI infrastructure spending and Tesla’s weaker cash flow raised doubts over the sustainability of the AI investment boom.

Semiconductor stocks managed a modest weekly rebound after recent heavy losses, but sentiment remained cautious due to elevated valuations and uncertainty around future demand. Strong results from Intel offered some support, highlighting continued demand for AI-related chips.

Trade tensions also added pressure after the Trump administration announced new tariffs on imports from several major trading partners, reigniting concerns over global growth and inflation.

Markets now turn their focus to a crucial week ahead, with the Federal Reserve’s policy decision and a heavy earnings calendar expected to provide fresh direction for equities.