US Dollar Index (DXY) retreats below 98.00, weighed by a brighter market mood

• The Dollar loses ground on Monday on declining demand for safe assets.

• Fresh concerns about the US-China trade deal are undermining the US Dollar.

• Higher hopes of Fed easing are adding pressure on the USD ahead of this week's meeting.

Friday’s US dollar recovery has been short-lived. The US Dollar Index, which measures the value of the Dollar against a basket of the most traded currencies, depreciates 0.3%, approaching the three-year lows, at 97.55 hit last week.

An improved market sentiment with investors gauging the impact of the Iran-Israel war after four days of attacks, has undermined demand for safe assets. The war has not spread to other countries as of yet, and the international pressures for a deal are boosting hopes that a peace agreement is possible.

As market’s focus has moved from the geopolitical tensions back to the US trade policy, a news report suggesdting that the US-China deal has left key issues, like rare earths exports unresolved, has revived investor’s concerns about the lack of progress on significant deals with trading partners, as the June 9 deadlone approaches. This has been weighing on the US Dollar for months.

Beyond that, traders are bracing for the Federal Reserve’s monetary policy meeting due later this week. The bank is expected to leave interest rates unchanged but might tone down its hawkish message in light of the soft US data recently seen. A dovish hold, laying the ground for a rate cut in September, might send the USD to new lows.