Both articles report that tentative signs of de-escalation in the Middle East conflict have reduced safe-haven demand for the US Dollar (USD), impacting major currency pairs. The Euro (EUR) has gained against the US Dollar, with EUR/USD trading around 1.1553 on Tuesday, rebounding from a two-month low of 1.1499 touched on Monday [1]. Similarly, USD/CAD trades around 1.3950 after pulling back from a two-month high of 1.3961, as the US Dollar gives back part of its recent gains [2].
US President Donald Trump indicated that the United States and Iran are nearing an agreement to end the war in the Middle East, and Iran and Israel have agreed to halt hostilities. Trump stated, "We're in the final throes of what will be a very, very good deal," and added that the Strait of Hormuz would reopen once a deal is finalized [1]. However, both sources note that tensions remain elevated, with Israel continuing military operations in Southern Lebanon and warnings from Iran that fighting could resume if Israeli attacks persist [1][2]. Israeli Prime Minister Benjamin Netanyahu commented that the conflict with Iran and Hezbollah "has not yet ended" [2].
The US Dollar Index (DXY) is trading around 99.89, down 0.12% on the day [1]. Despite the easing of safe-haven flows, the Greenback continues to draw support from hawkish Federal Reserve expectations. Traders expect the US central bank could raise interest rates as soon as September, with a 35% probability of a 25-basis-point hike according to the CME FedWatch Tool [1]. Source 2 reports a higher probability for a December hike, at 43%, up from 14% a month ago [2]. This discrepancy highlights uncertainty regarding the timing of potential Fed tightening. Recent strong US labor market data have reignited inflation concerns, and upcoming US Consumer Price Index (CPI) data on Wednesday and Producer Price Index (PPI) figures on Thursday are expected to provide further clues on the Fed’s policy path [2]. Economists expect annual inflation to accelerate to 4.2% in May from 3.8% in April [1].
In Canada, the Bank of Canada (BoC) is set to announce its policy decision on Wednesday. Markets overwhelmingly expect the central bank to leave its policy rate unchanged at 2.25% [2]. Rabobank also expects rates to remain at that level through year-end, citing conflicting forces between energy-driven inflation risks and economic weakness from external trade uncertainties [2]. RBC offers a more optimistic view, suggesting recent GDP figures overstate economic weakness and that Canada is in the early stages of recovery [2]. Weakness in Oil prices continues to weigh on the Canadian Dollar, given Canada’s status as a major energy exporter [2].
Across the Atlantic, traders are fully pricing in a rate hike at the European Central Bank (ECB) meeting scheduled for Thursday, with uncertainty about whether the ECB will signal further increases amid rising stagflation risks in the Eurozone [1].
CONCLUSION
De-escalation in the Middle East has eased safe-haven demand for the US Dollar, supporting the Euro and Canadian Dollar, though ongoing regional tensions keep market caution elevated. Central bank decisions and upcoming US inflation data are expected to drive further currency moves, with the Fed and ECB facing diverging inflation and growth dynamics. The market remains focused on policy signals and geopolitical developments for direction.