European currencies strengthened against the US dollar as markets reacted to reports of a temporary ceasefire agreement between Washington and Tehran. The reduction in geopolitical risk has shifted sentiment, weakening demand for so-called defensive assets and encouraging flows into higher-risk currencies, particularly across developed markets.
At the same time, falling oil prices added to the pressure on the dollar. Expectations of more consistent supply through the Strait of Hormuz have eased concerns around energy-driven inflation, contributing to a softer outlook for price pressures. This has, in turn, reinforced the view that the Federal Reserve may adopt a more flexible policy stance in the coming months. Declining US Treasury yields have further supported this narrative, with market participants increasingly factoring in potential rate cuts before the end of the year. As a result, the dollar remains on the back foot, with limited signs of a sustained recovery at this stage.
EUR/USD
The euro has pushed higher against the dollar, breaking above its recent consolidation phase. If momentum is maintained, the pair could continue moving towards the 1.1740–1.1770 area. However, after the recent advance, a near-term retracement towards the 1.1610–1.1630 region — previously acting as resistance — could be a technically consistent development. A move back below 1.1600 on a daily basis would suggest that bullish momentum is fading and that price may return to a range environment.
Key events for EUR/USD:
- 09:00 (GMT+3): German industrial production
- 15:30 (GMT+3): US Core PCE Price Index
- 15:30 (GMT+3): US GDP
GBP/USD
Sterling has also benefited from the broader dollar weakness, with GBP/USD moving decisively higher. Following this upward move, the pair could experience a period of consolidation or a pullback towards the 1.3320–1.3350 zone. Should buying pressure persist and recent highs give way, the next upside targets could be around 1.3510–1.3560.
Key events for GBP/USD:
- 11:30 (GMT+3): Bank of England Credit Conditions Survey
- 12:00 (GMT+3): UK mortgage rate data
- 15:30 (GMT+3): US initial jobless claims
Summary
The current move in European currencies is underpinned by improving risk sentiment, softer energy prices, and a shift in expectations regarding US monetary policy. The recent upside moves in EUR/USD and GBP/USD indicate that markets are, for now, favouring risk exposure over defensive positioning.
Looking ahead, incoming US data will be key in shaping the next phase. Continued declines in yields and stronger conviction around policy easing could maintain pressure on the dollar. On the other hand, any upside surprises in macroeconomic releases may prompt a reassessment, potentially leading to a stabilisation in the greenback and a pause in the current trends.
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