The euro remains steady near over three-year highs against the US dollar. This is supported by a moderate risk appetite and declining oil prices. Weak US economic data and heightened expectations of Federal Reserve interest rate cuts are weighing on the US dollar.
The EUR/USD is trading with marginal losses on Wednesday but remains close to a multi-year high near 1.1640. This follows a nearly 1.40% rally in the previous two days. A moderate appetite for risk continues to drive markets, despite the fragility of the ceasefire between Israel and Iran.
This is keeping the safe-haven US dollar on its back foot. Oil prices have ticked up from Tuesday’s lows but remain well below the highs seen last week. Iran’s oil and natural gas facilities appear to have been little affected by recent bombings.
Oil traffic through the strategic Strait of Hormuz does not seem under threat, at least for now. The relatively low crude prices are providing additional support to the euro as they ease inflationary pressures in the Eurozone. In the US, Federal Reserve Chairman Jerome Powell reiterated that the central bank is in no rush to cut interest rates.
This was during his semiannual Monetary Policy Report to Congress on Tuesday. Despite pressure from US President Donald Trump and increasing dissension among Fed officials, Powell maintained a hawkish stance. However, the market still anticipates a rate cut in September, especially after the downbeat Consumer Confidence reading released on Tuesday.
Increasing concerns about employment are limiting US consumers’ purchasing decisions and adding pressure on the central bank to adopt a less restrictive monetary policy. Powell will testify again on Wednesday, but he is unlikely to change his views. The economic calendar is relatively light, with only US New Home sales data for May expected.
Developments in the Middle East will continue to influence market sentiment. The euro is being buoyed by the US dollar’s weakness. The US Dollar Index, which measures the value of the greenback against six major currencies, remains depressed near three-year lows, at 97.60.
It is weighed down by positive risk sentiment and higher hopes that the Fed will be forced to cut interest rates, probably in September. The ceasefire between Israel and Iran, announced by US President Trump on Monday, is fragile but holding for now.
Euro buoyed by weak US dollar
This is contributing to the moderate risk appetite and keeping the euro buoyed while reducing demand for safe-haven assets like the US dollar. Reports from US intelligence, however, cast doubt on the durability of the truce. A preliminary assessment suggests that the US bombing on Iran’s nuclear sites may have only set back their program by one or two months.
It may not have caused significant long-term damage. It is uncertain if a long-lasting peace can be assured in this new context. Eurozone data released on Wednesday showed that French Consumer Confidence remained steady at 88, against expectations of a slight improvement to 89.
In Spain, the final reading of first-quarter Gross Domestic Product confirmed previous estimates of 0.6% quarterly growth and a 2.8% annual increase. On Tuesday, the German IFO Business Climate Index increased to 88.4 in June from 87.5 in May, slightly above the 88.3 expected. The Business Expectations index also improved, to 90.7 from 88.9, beating expectations of a 90.0 reading.
However, the impact on the euro was marginal. In the US, the Conference Board’s Consumer Confidence index fell to 93.0 in June from 98.4 in May. This was contrary to the expected increase to 100.00.
The decline was attributed to heightened concerns about job availability. Despite this, Fed Chairman Powell reiterated that the central bank is “well positioned to wait” on rate changes. He cited expected inflationary pressures from higher tariffs as a factor that could weigh on economic activity.
Investors are still betting on further Fed rate cuts over the coming months. Data from the CME Group’s Fed Watch shows an 18% chance of a rate cut in July and 85% in September, up from 14% and 65%, respectively, in the previous week. The EUR/USD pair remains positive with 1.1630 acting as immediate resistance.
The pair resumed its broader bullish trend after breaching the top of the recent corrective channel. This was supported by investors’ optimism following Trump’s ceasefire announcement in the Middle East conflict. A bearish reaction from current levels might seek support at the broken trendline, now around the 1.1535 previous resistance area.
A confirmation below that level would cancel the bullish view and bring the recent lows near 1.1445 back into focus. Overall, the euro remains buoyed by a weaker US dollar. The pair is consolidating near multi-year highs as markets continue to weigh geopolitical developments and central bank policies.
