The Japanese yen stabilized on Tuesday after initially rising following a split decision by the Bank of Japan to hold interest rates steady. Meanwhile, the U.S. dollar edged higher as markets focused on upcoming central bank guidance amid the ongoing impact of the war with Iran.

The yen was last seen trading slightly lower against the dollar at 159.63 and up marginally against the Euro at 186.75, retracing most of the gains made after three out of nine board members dissented, calling for a rate hike. In its quarterly outlook, the bank sharply raised core inflation forecasts for the fiscal years ending March 2027 and 2028, while lowering growth projections for both years.

During a press conference, Governor Kazuo Ueda kept the door open for future hikes but provided no clear timeline for policy shifts.

Takeshi Ishida, a strategist at Kansai Mirai Bank, noted: "The yen rose immediately after the meeting because the economic outlook leaned hawkish and three members dissented. Markets then waited cautiously for the Governor’s press conference, but it wasn't as hawkish as the statement suggested, causing the yen to pare its early gains."

The persistent weakness of the yen remains a concern for Tokyo. Earlier Tuesday, Finance Minister Satsuki Katayama warned speculators that volatility in crude oil futures is spilling into currency markets, adding that authorities are on high alert 24/7 to take decisive action.

In contrast, the U.S. Dollar Index rose 0.18% to 98.64, snapping a two-day losing streak.

While President Donald Trump discussed a new Iranian proposal to end the war with senior national security aides on Monday, a U.S. official later stated that Trump was dissatisfied as the proposal did not address Iran's nuclear program.

Despite rising oil prices fueled by doubts over a diplomatic solution, the dollar struggled to find strong momentum. Derek Halpenny, head of research at MUFG, pointed out that the resilience of U.S. equity markets—driven by strong corporate earnings and AI-related optimism—is offsetting some risks associated with higher energy costs and limiting dollar buying.

Markets are also eyeing Wednesday’s Federal Reserve meeting. The central bank is expected to hold rates steady in what could be Jerome Powell’s final meeting before Kevin Warsh takes over in May, following the removal of legislative hurdles to Warsh's appointment.

Steve Englander, head of G10 FX research at Standard Chartered, said: "This meeting is less about a change in policy and more about the Fed's economic assessment. The inflation picture is improving very slowly, which will be a significant issue for Warsh to manage upon his arrival."

Other major central bank decisions from the Eurozone, the UK, and Canada are also expected later this week. The Euro fell 0.14% to 1.1704 dollars, while the British pound declined 0.17% to 1.3507 dollars.

Gold prices deepened their losses in the European market on Tuesday, falling for a second consecutive day and hitting their lowest level in three weeks. The precious metal is approaching a break below the 4,600 dollars per ounce mark, pressured by a strengthening U.S. dollar in the foreign exchange market.

The resurgence of the American currency comes as investors seek safe-haven assets, following a decline in optimism regarding the success of peace negotiations between the United States and Iran.

The Federal Reserve's monetary policy meeting is set to begin later today, with decisions expected on Wednesday. Markets broadly anticipate that interest rates will remain unchanged for the third consecutive meeting.

Price Overview

- Gold Prices Today: Gold dropped by 1.4% to (4,614.90 dollars), the lowest level since April 7, from an opening level of (4,681.89 dollars), after recording a session high of (4,701.33 dollars).

- At Monday's close, gold prices lost 0.6%, marking the second loss in three days due to developments surrounding the U.S.-Iran peace talks.

The U.S. Dollar

The dollar index rose by 0.25% on Tuesday, resuming gains after a two-session pause. This climb reflects renewed demand for the dollar as the preferred alternative investment amid fears that the current diplomatic efforts may stall, increasing the risk of renewed military confrontations in the Middle East.

An official indicated that President Donald Trump is dissatisfied with Iran's latest proposal to resolve the two-month-old conflict, which has heavily disrupted global energy supplies. Axios previously reported that Iran had proposed reopening the Strait of Hormuz and ending the war while deferring nuclear negotiations to a later stage.

The Federal Reserve

The Federal Reserve begins its policy meeting later today, with expectations firm that rates will be held steady at 3.75%—a three-year low—for the third straight meeting. The subsequent policy statement and Jerome Powell's press conference will provide critical evidence regarding the trajectory of U.S. interest rates for the remainder of the year.

U.S. Interest Rates

- Kevin Warsh, a nominee for a senior Federal Reserve position, stated last week that he has not made any promises to Trump regarding rate cuts.

- According to the CME FedWatch Tool: The probability of keeping rates unchanged this week stands at 99%, with only a 1% probability of a 25-basis-point hike.

Gold Performance Expectations

Edward Meir, an analyst at Marex, noted that geopolitical headlines remain the primary driver for gold prices. He suggested that a confirmed agreement or even a temporary deal between the U.S. and Iran would likely weaken the dollar and boost gold. Meir added that the Fed's role is currently limited, as no immediate rate action is expected, though cuts could occur in the fourth quarter as the global economy slows.

SPDR Fund

Gold holdings at the SPDR Gold Trust decreased by approximately 2.28 metric tons on Monday, marking the fourth consecutive daily decline. Total holdings fell to 1,044.34 metric tons, the lowest level since November 24, 2025.

The Euro declined in the European market on Tuesday against a basket of global currencies, on track to incur its first loss in three days against the U.S. dollar. This comes as investors return to purchasing the American currency as a safe haven, following receding optimism regarding the success of talks between the United States and Iran in reaching a lasting peace agreement.

The European Central Bank (ECB) is set to meet tomorrow, Wednesday, with decisions due on Thursday. Markets expect interest rates to remain unchanged, while looking for further clues regarding the path of European monetary policy for the remainder of the year.

Price Overview

- Euro Exchange Rate Today: The Euro fell against the dollar by 0.1% to ($1.1708), from today’s opening price of ($1.1719), after reaching a high of ($1.1627).

- The Euro ended Monday's trading up by less than 0.1% against the dollar, marking its second consecutive daily gain as it continued to recover from a nearly two-week low of $1.1670.

The U.S. Dollar

The dollar index rose by 0.1% on Tuesday, resuming the gains that had paused over the last two sessions. This reflects a renewed ascent of the American currency against both major and minor rivals.

This rise is driven by renewed demand for the U.S. dollar as the preferred alternative investment, amid mounting fears that current peace talks between the U.S. and Iran may falter, increasing the likelihood of renewed military confrontations in the Middle East.

An official reported that President Donald Trump is dissatisfied with Iran's recent proposal to resolve the two-month-old war, dampening hopes for a resolution to the conflict that has disrupted global energy supplies. Axios had previously reported, citing sources, that Iran—via Pakistani mediators—submitted a proposal to reopen the Strait of Hormuz and end the war while deferring nuclear negotiations.

European Central Bank

The ECB convenes this Wednesday and Thursday for its third monetary policy meeting of 2026. Markets fully expect the central bank to maintain interest rates, which would mark the seventh consecutive meeting with no change.

However, sources told Reuters that the ECB is likely to begin discussing potential interest rate hikes during this week's meeting.

European Interest Rates

- Money market pricing for a 25-basis-point interest rate hike by the ECB this week remains stable at less than 20%.

- ECB President Christine Lagarde stated that the bank is prepared to raise interest rates even if the anticipated rise in inflation is expected to be short-term.

The Japanese yen rose in the Asian market on Tuesday against a basket of major and minor currencies, recording its highest level in a week against the U.S. dollar. This followed the announcement of the Bank of Japan’s (BoJ) monetary policy meeting results, which were more hawkish than markets had anticipated.

The Japanese central bank kept interest rates unchanged for the third consecutive meeting. However, it warned of escalating inflationary pressures due to the repercussions of the Iranian war and high energy prices.

The vote to hold rates steady passed with a 6-to-3 majority, as three members called for a 25-basis-point hike to the 1.0% range. This split bolstered expectations for a normalization of monetary policy in the upcoming June meeting.

Price Overview

- Japanese Yen Exchange Rate Today: The dollar fell against the yen by approximately 0.3% to (158.98¥), a one-week low, from an opening price of (159.41¥), after recording a high of (159.57¥).

- The yen ended Monday's trading down 0.1% against the dollar, marking its fifth loss in the last six days, as difficulties in peace negotiations between the U.S. and Iran weighed on sentiment.

Bank of Japan

In line with most global market expectations, the Bank of Japan on Tuesday kept its benchmark interest rate unchanged at 0.75%, its highest level since 1995, for the third consecutive meeting.

The decision was reached by a 6-to-3 vote. Members Nakagawa, Takata, and Tamura proposed raising the short-term interest rate target from 0.75% to 1.0%, reflecting the bank's concern over inflationary pressures stemming from the Middle East conflict.

The bank warned that Japan's economic growth is likely to slow, as high crude oil prices resulting from the Middle East crisis are expected to squeeze corporate profits and real household income. The bank noted that wages and prices could face upward pressure due to the fallout of the Iranian war.

The BoJ lowered its growth forecast for fiscal year 2026 to 0.5% from 1% and sharply raised its core inflation forecast to 2.8% from 1.9%.

Japanese Interest Rates

- Following the meeting, the market probability of a 25-basis-point rate hike by the Bank of Japan at the June meeting rose from 45% to 75%.

- To further refine these probabilities, investors are awaiting more data on inflation, unemployment, and wage levels in Japan.

Kazuo Ueda

Bank of Japan Governor Kazuo Ueda is scheduled to speak shortly regarding the results of the monetary policy meeting. His comments are expected to provide stronger evidence concerning the future of monetary policy normalization and the potential for rate hikes throughout the year.