EUR/USD stayed under pressure on Thursday as Middle East tensions supported the US Dollar. The pair was near 1.1537 after touching 1.1509, while the US Dollar Index traded near 100 after a daily high of 100.26.
Reports around the US-Iran conflict kept currency markets volatile. After US President Donald Trump said military operations would continue with no clear end date, hopes of de-escalation fell.
Oil Prices And Safe Haven Demand
Oil prices moved higher again amid concerns about supply disruptions through the Strait of Hormuz. The US Dollar also recovered from a one-week low as demand increased for safer assets.
Higher Oil prices are raising inflation concerns and adding risks to growth. This has led traders to adjust rate expectations, with two to three European Central Bank (ECB) rate rises priced in by year-end and the Federal Reserve expected to keep rates unchanged through 2026.
The Eurozone is more exposed to higher energy costs because it imports more energy, while the US is a net exporter. Eurozone inflation is closer to the ECB’s 2% target than US inflation.
ECB policymaker François Villeroy de Galhau said the next move in key rates is “highly likely to be upwards”. Focus now turns to Friday’s US Nonfarm Payrolls report.
Looking Back To 2025
Looking back at this time in 2025, we saw how geopolitical tensions in the Middle East created a strong bid for the US Dollar as a safe haven. This dynamic pushed EUR/USD down toward the 1.15 level as markets braced for continued conflict. The surge in oil prices back then fueled fears of inflation, particularly in the energy-dependent Eurozone.
The situation today, in early April 2026, is quite different. With Middle East tensions having eased, the dollar’s safe-haven appeal has faded, and the US Dollar Index (DXY) is now trading closer to 97.5. This has allowed EUR/USD to recover significantly from those 2025 lows, recently trading in a range around 1.18.
Last year’s oil-driven inflation scare has also subsided. Brent crude prices have stabilized around $78 a barrel, a far cry from the crisis peaks feared in 2025. Recent data shows Eurozone headline inflation for March 2026 cooled to 1.8%, falling below the ECB’s target and calming expectations of aggressive policy tightening.
This contrasts with the United States, where core inflation remains stickier, with the latest CPI print holding at 2.5%. This has shifted the narrative we saw in 2025, where the ECB was expected to be more aggressive than the Fed. Now, the market is pricing in a more patient ECB while the Fed may need to maintain its cautious stance for longer.
Given this policy divergence, derivative traders should consider positioning for potential EUR/USD weakness in the coming weeks. The rally from the 2025 lows may be overextended, and buying EUR/USD put options could offer a defined-risk way to capitalize on a potential downturn. Implied volatility is lower than during last year’s geopolitical flare-up, making options strategies relatively cheaper.
We will be watching the upcoming central bank communications very closely. The key will be whether the ECB signals a more dovish tilt in response to the sub-2% inflation reading. Any confirmation of a widening policy gap between a patient ECB and a still-vigilant Fed could accelerate a move lower in the currency pair.
