The Euro (EUR) strengthened against the US Dollar (USD) on Tuesday, with EUR/USD trading around 1.1701 after rebounding from an intraday low of 1.1676. This move was supported by a mild pullback in Oil prices, which contributed to lower US Treasury yields and added pressure on the Greenback. The US Dollar Index (DXY) was reported at 98.40, down approximately 0.07% on the day, reflecting the dollar's weakness amid these developments [1].
Market sentiment remained cautious due to renewed hostilities in the Middle East, specifically fresh attacks in the Gulf region that raised concerns about the durability of the ongoing ceasefire. However, US Defense Secretary Pete Hegseth stated that the ceasefire with Iran is 'not over' despite escalating tensions in the Strait of Hormuz, and emphasized that US President Donald Trump will determine if recent events constitute a violation. This statement helped ease immediate fears of escalation, leading to a 3% decline in West Texas Intermediate (WTI) oil prices at the time of writing, though oil prices remained elevated overall. Elevated oil prices continue to keep inflation risks in focus and have led to expectations that major central banks, including the European Central Bank (ECB), may need to adopt a more hawkish stance [1].
Traders are now pricing in at least two rate hikes from the ECB this year, but uncertainty persists regarding the ECB's ability to deliver aggressive hikes due to the Eurozone's high exposure to energy shocks. ECB Governing Council member François Villeroy de Galhau commented that he does not yet see 'sufficient signs for a rate hike,' but added that the bank 'will raise rates if it sees second-round effects' [1].
In the US, the CME FedWatch tool indicates that the Federal Reserve is likely to remain on hold in the near term, though the probability of a rate hike at the December meeting has increased to around 27%, up from near zero a week ago. Recent US economic data showed JOLTS Job Openings fell to 6.866 million in March, slightly above expectations of 6.83 million but down from 6.922 million in February. The ISM Services PMI edged lower to 53.6 in April from 54 in the previous month, coming in just below market expectations of 53.7 [1].
CONCLUSION
The EUR/USD pair has found support from weaker US economic data, lower yields, and a pullback in oil prices, though market sentiment remains fragile due to geopolitical tensions. While expectations for ECB rate hikes have increased, uncertainty persists, and the Federal Reserve is seen as likely to hold rates steady in the near term. Overall, the market remains cautious amid ongoing risks and mixed central bank signals.