The Euro traded lower against both the US Dollar and the British Pound on Friday, with EUR/USD hovering around 1.1615 and EUR/GBP subdued near 0.8650, as investors reacted to ongoing uncertainty surrounding US-Iran peace negotiations and a series of weak economic data from the Eurozone and UK [1][2]. Iranian officials noted that the latest US proposal had narrowed the gap between the two sides, but persistent disputes over Tehran's uranium stockpile and tolls in the Strait of Hormuz clouded the outlook for a breakthrough [1][3]. US President Donald Trump warned of a possible resumption of attacks if Iran does not agree to US terms, while US Secretary of State Marco Rubio highlighted Iran's toll demands as a blockade to peace [1][3].
The Euro's weakness was compounded by a sharp contraction in the Eurozone economy, with S&P Global flash PMI data showing the fastest pace of decline since late 2023, driven by conflict-fueled surges in living costs and input price inflation reaching a three-year high [2]. The ECB is expected to hike rates in June, but is likely to remain noncommittal about further moves, tempering expectations for additional tightening [1]. Meanwhile, the Bank of England maintained a hawkish stance despite UK business activity contracting sharply, as the S&P Global Composite PMI fell to 48.5 in May from 52.6, well below expectations [2].
Gold prices remained under pressure, holding above $4,500 but lacking follow-through buying, as the US Dollar stayed near a six-week high on hawkish Federal Reserve expectations and persistent geopolitical risks [3]. Market participants have priced out any Fed rate cuts for 2026, instead betting on at least one rate hike before year-end, with the CME FedWatch Tool indicating over a 60% chance of a 25 basis point hike in December [3]. Minutes from the April FOMC meeting showed officials leaning toward keeping rates elevated or raising them if inflation remains above target [3].
European equity markets, however, showed resilience, with futures for the Stoxx 50, DAX, FTSE 100, and CAC 40 all trading higher ahead of the open, putting the Stoxx 600 on track for a weekly gain of 2.25% [4]. Oil prices extended their rally, with Brent crude holding above $104 per barrel, as concerns grew over a prolonged conflict and supply disruptions [4]. Investors awaited key economic data releases, including the GfK German Consumer Confidence report, UK public sector borrowing, and French business confidence, to gauge the impact of rising energy costs and geopolitical tensions on the European economy [2][4].
In corporate news, Estée Lauder and Puig ended merger talks, with Estée Lauder shares rising more than 10% in after-hours trading [4].
CONCLUSION
Geopolitical tensions between the US and Iran, combined with weak economic data, have pressured the Euro and gold while supporting the US Dollar. Despite these headwinds, European equities are rallying, buoyed by hopes for a resolution and anticipation of key economic data. The market remains highly sensitive to developments in the Middle East and central bank policy signals.