The Euro (EUR) has rebounded from weekly lows but continues to post moderate losses against the US Dollar (USD) on Thursday, trading above 1.1600 after hitting lows of 1.1586. This marks the third consecutive day of bearish movement for the pair, driven by heightened geopolitical tensions in Iran and rising Oil prices, which have dampened risk appetite in the markets [1]. News of fresh US attacks on Iran, Tehran's strike on a US base in the Gulf, and Kuwait's interception of hostile missiles and drones have contributed to market uncertainty and pushed Brent Oil prices above $94, up from below $92 on Wednesday [1].
Despite these tensions, the US Dollar Index (DXY) remains in a tight consolidation range between 98.9 and 99.5, reflecting the volatility of ongoing US-Iran negotiations. According to DBS Group Research economist Philip Wee, financial markets are showing optimism for a potential US-Iran peace deal and the reopening of the Strait of Hormuz, which has led to a decline in geopolitical risk premiums across asset classes [2]. However, the Euro remains vulnerable, with technical indicators such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) signaling fading upside momentum and a mildly bearish near-term bias for EUR/USD [1].
From a policy perspective, market participants are closely watching the upcoming European Central Bank (ECB) meeting. The ECB Watch Tool indicates a 91% probability of a 25 basis point hike in the Deposit Rate to 2.25% at the June 11 meeting, a view supported by recent comments from ECB officials including Chief Economist Philip Lane and policymaker Isabel Schnabel [1]. In the US, attention is focused on the release of the Personal Consumption Expenditures (PCE) Price Index for April, which is expected to confirm rising prices and could influence the Federal Reserve's policy stance. DBS expects the Trump administration to look past the higher PCE inflation data, with the Fed seen pivoting towards lower guidance, while other major central banks maintain clear communication to anchor inflation expectations [2].
Technical analysis suggests that EUR/USD is trading within an 80-pip range (1.1575–1.1660), with downside risks if support at 1.1575 is broken, and potential upside if resistance at 1.1660 is cleared [1]. The DXY's range-bound behavior is attributed to alternating optimism and disappointment over US-Iran negotiations, with the greenback coming under pressure when hopes rise and gaining defensively when talks falter [2].
CONCLUSION
Both the Euro and US Dollar are trading within narrow ranges as markets react to shifting geopolitical risks and central bank policy expectations. While hopes for a US-Iran peace deal and reopening of the Strait of Hormuz have eased some risk premiums, persistent tensions and upcoming inflation data continue to drive cautious sentiment. The market remains attentive to central bank decisions and further developments in the Middle East.