06.01.202021:15:00UTC+00Dollar Loses Ground As Geopolitical Tensions Escalate

The U.S. dollar was weak against most major rivals on Monday amid worries about an escalation in tensions between the Middle East following the killing of Iran's top military commander Qassem Soleimani in a U.S. drone strike last Thursday.

Iran vowed "severe revenge" against the United States for the killing. U.S. President Donald Trump threatened to strike back if Tehran were to retaliate.

Trump also threatened Iraq with harsh sanctions if the country forced out U.S. troops.

The threat against Iraq, the second largest producer among the OPEC, comes after its parliament voted in favor of a resolution calling for an end to the foreign military presence in the country, including the estimated 5,200 U.S. troops stationed to help fight Islamic State extremists.

Iran announced Sunday it would no longer abide by the limits contained in the 2015 nuclear deal while reports from Baghdad say the U.S. embassy compound there was targeted in an attack on Sunday evening.

The dollar index, which drifted down to a low of 96.54 early on in the day, recovered to 96.65 around late afternoon, but was still trailing its previous close by about 0.2%.

Against the Euro, the dollar weakened to $1.1197, more than 0.3% down from Friday's close, after survey data from Sentix showed eurozone investor confidence rose for third successive month in January, and at a faster-than-expected pace, to its highest level in over a year amid signs of an easing in the US-China trade dispute.

The Sentix investor confidence index climbed to 7.6 points from 0.7 in January. Economists had forecast a score of 2.6.

Against Sterling, the dollar dropped to $1.3165, about 0.35% from previous close, after data showed a smaller than expected contraction in the U.K. private sector growth.

Final data from IHS Markit showed that the composite output index held steady at 49.3 in December. The latest reading was the joint-lowest since July 2016. However, the score was above the flash 48.5.

The services Purchasing Managers' Index improved to the neutral 50.0 from 49.3 a month ago. The flash reading was 49.0. The stabilization of service sector output was helped by a return to improving order books.

The Yen dropped to 108.41 a dollar, weakening from a high of 107.78 a dollar. According to a survey from Nikkei, Japan's manufacturing sector continued to contract in December, and at a faster rate, with a manufacturing PMI score of 48.4.

That's down from 48.9 in November and it moves further beneath the boom-or-bust line of 50 that separates expansion from contraction.

Against the Loonie, the dollar was down nearly 0.3% at 1.2963, and against Swiss franc, the dollar traded at 0.9681, about 0.5% down from last week.

The Aussie-Dollar pair was at 0.6939. Australia's private sector contracted for the second straight month in December, reflecting declines both services and manufacturing output, data from IHS Markit showed.

The Commonwealth Bank composite output index fell marginally to 49.6 from 49.7 in November.

Although the services Purchasing Mangers' Index improved slightly to 49.8 in December from 49.7 in November, the index remained below neutral 50.