On Thursday, both the EUR/USD currency pair and gold prices surged as market sentiment improved on hopes for peace talks between Israel and Lebanon, coupled with a weakening US Dollar. The EUR/USD pair rose by approximately 0.33%, trading near the 1.1700 level and reaching a five-week high of 1.1723 earlier in the day, as the US Dollar Index (DXY) fell 0.18% to 98.82 [1]. Gold (XAU/USD) also rallied, approaching the $4,800 mark, supported by the softer Dollar and lower US Treasury yields, with the DXY dropping to 98.63 and the 10-year Treasury yield falling two basis points to 4.279% [2].
The core event driving these moves was the announcement by Israeli Prime Minister Benjamin Netanyahu expressing openness to negotiations with Lebanon, with both countries agreeing to begin discussions next Tuesday in Washington [1][2]. This development followed recent escalations, including Israel's largest attack in Lebanon, which reportedly killed more than 300 people, and statements from the Iranian regime emphasizing that the truce should extend to the Israel-Lebanon border [1][2]. Lebanon, according to AFP, is seeking a ceasefire before talks with Israel [2].
The anticipation of peace talks and the ongoing US-Iran truce, which has led to a significant reduction in shipping through the Strait of Hormuz, contributed to a decline in oil prices, with WTI trading around $95.60, down 0.13% on the day [2]. The drop in oil prices is seen as a headwind for the Euro, as most European countries are net energy importers, but the positive correlation between WTI and the US Dollar helped push the Greenback lower, supporting both EUR/USD and gold [1][2].
US economic data took a back seat amid geopolitical developments. The US economy grew at a slower-than-expected pace in Q4 2025, with GDP rising 0.5% year-on-year, below the 0.7% estimate [1][2]. The Core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's preferred inflation gauge, decreased from 3.1% to 3% in February, as forecast [1][2]. Initial Jobless Claims rose to 219,000, above expectations, while Continuing Claims fell to 1.794 million, their lowest since May 2024, indicating ongoing labor market resilience [1][2].
Looking ahead, market participants are focused on the upcoming US Consumer Price Index (CPI) report for March, expected to show headline inflation rising from 2.4% to 3.3% and core CPI from 2.5% to 2.7% [2]. Traders' expectations for Federal Reserve rate cuts remained unchanged, with money markets pricing in 7.5 basis points of easing by year-end [2]. In Europe, the ECB is projected to tighten policy by 56 basis points towards year-end, despite weak German industrial production data [1].
CONCLUSION
Geopolitical developments in the Middle East, particularly the prospect of Israel-Lebanon peace talks, have weakened the US Dollar and driven gains in both EUR/USD and gold. While US economic data remains mixed, market attention is shifting to upcoming inflation reports and central bank policy expectations. The overall market sentiment is cautiously optimistic, with risk assets benefiting from hopes of de-escalation in the region.