Insights 
VT 
The Euro holds steady near its multi-year highs against the US Dollar, aided by easing geopolitical tensions and lower oil prices. Weak US economic data and expectations of Federal Reserve interest rate cuts are adding pressure on the US Dollar.
The EUR/USD trades with slight losses but stays close to a peak near 1.1640 seen in November 2021. The fragile ceasefire between Israel and Iran maintains a moderate risk appetite, which affects demand for the US Dollar.
Oil Prices And Geopolitical Tensions
Oil prices remain below recent highs as Iranian facilities seem unaffected by bombings, with the Strait of Hormuz operating normally. Lower oil prices help ease inflation concerns in the Eurozone, benefiting the Euro.
Fed Chairman Jerome Powell maintains a careful stance, showing no urgency in cutting rates despite potential pressure from political figures. The market expects a rate cut around September, particularly as US Consumer Confidence fell below projections.
In Europe, French Consumer Confidence stayed at 88, while Spain’s GDP growth was confirmed at 0.6% quarterly. Germany’s IFO Business Climate Index rose slightly, but the impact on the Euro remains limited.
Overall, risk sentiment is shaping currency movements with attention on developments in the Middle East and Fed policies.
US Dollar And Risk Sentiment
At present, the single currency appears to be consolidating its position at elevated levels, reflecting both relative stability in Euro-area indicators and short-term softness in US data. Weakness in US consumer confidence signals some erosion in domestic demand expectations, which, in coordination with stagnant inflationary conditions, is shifting expectations toward monetary easing rather than continued restraint. We interpret the cautious comments from Powell not as resistance to policy adjustment, but a desire to maintain optionality while broader data evolves.
Traders should approach the coming sessions by carefully assessing the disconnect between market pricing and forward guidance. While a rate cut is not explicitly scheduled, current futures imply mounting pressure ahead of the September meeting. Should CPI readings or labour market figures in the United States underwhelm again, the Dollar may face sustained headwinds, especially against currencies supported by more balanced economic outlooks.
European data, though not rally-inducing, has avoided deterioration. Spain’s quarterly expansion gives stability at the southern edge of the union, while Germany’s gradual recovery from its industrial funk, as shown by the IFO survey, contributes to a wider sense of equilibrium. France, while lagging in sentiment, has avoided the contraction territory that might otherwise weigh on the currency bloc.
Oil remains subdued after tensions cooled in the Middle East and disruptions in key shipping routes failed to materialise. That has had two effects. First, downward pressure on headline inflation in Europe solidifies the case for the ECB to pause rather than tighten further. Second, reduced demand for safe-haven flows into the Dollar could extend current momentum in favour of the Euro.
Short-term momentum in futures pricing continues to favour Euro strength, but that comes with caveats. Further outperformance would need more than just Dollar weakness – investors may look for improved PMI data or clarity on upcoming ECB moves. It remains important, then, to monitor interest rate differentials closely.
Geopolitical sensitivity also plays a role – ceasefires are by nature fragile, and any escalation would likely reintroduce demand for USD-based safe assets. In that regard, watching physical commodities – oil especially – may serve as both a volatility indicator and a sentiment gauge.
For the time being, with rate cuts priced and risk appetite holding firm, we maintain an outlook that favours buying dips within established ranges. But the balance remains delicate, and surprises on either economic or geopolitical fronts can quickly reverse these dynamics.
