EUR/USD retreated from its intraday highs on Thursday, trading around 1.1748 after reaching a peak near 1.1778 earlier in the session, as renewed geopolitical tensions in the Middle East contributed to a recovery in both the US Dollar and Oil prices following recent weakness [1]. The US Dollar Index (DXY) rebounded toward 98.00 after previously declining to near pre-war levels earlier in the week [1].
Market sentiment turned cautious following reports that the US was considering restarting 'Project Freedom' to help unblock the Strait of Hormuz, according to US officials cited by The Wall Street Journal. However, a US official later told Al Jazeera that these reports were incorrect, highlighting uncertainty around US intentions in the region [1]. Additionally, CNN reported that Iran has introduced a new set of rules for vessels transiting the Strait of Hormuz, requiring completion of a 'Vessel Information Declaration' issued by the newly established Persian Gulf Strait Authority (PGSA). It remains unclear whether transit fees, previously reported to be around $2 million, will be imposed [1].
The ongoing uncertainty surrounding the Strait of Hormuz has kept Oil prices elevated despite some easing from recent highs, fueling inflation concerns and increasing pressure on central banks to consider further interest rate hikes [1]. Boston Fed President Susan Collins stated that interest rates may need to remain on hold 'for a longer period,' warning that 'the odds of a worse inflation scenario have increased' [1]. Market participants are now awaiting Friday’s Nonfarm Payrolls (NFP) report for additional guidance on the Federal Reserve’s policy direction [1].
On the European side, ECB policymaker Isabel Schnabel warned that monetary policy 'will need to tighten if the energy shock spreads,' and emphasized that the ECB would take the 'necessary steps to restore inflation to 2%' [1].
CONCLUSION
The EUR/USD pair has come under pressure as geopolitical tensions in the Middle East drive Oil prices higher and reinforce inflation concerns. Both the Federal Reserve and the European Central Bank have signaled a cautious stance, with further policy tightening possible if inflation risks persist. Market participants are closely watching upcoming economic data for further direction.