Key Moments
- EUR/USD traded near 1.1535 in early Asian dealings on Monday, extending recent gains.
- Comments from U.S. President Donald Trump on Israel-Iran tensions highlighted geopolitical risks that could support the U.S. dollar as a safe haven.
- Markets focused on expectations for the ECB to lift its deposit rate to 2.25% in June, with another increase seen likely in September.
Euro Supported Above 1.1500 in Early Asian Trading
EUR/USD inched higher in early Asian trading on Monday, with the pair changing hands around 1.1535. The move extended recent upside momentum for the euro against the U.S. dollar, although market participants remained wary that ongoing geopolitical tensions could limit further gains.
Traders also watched for upcoming European data, with Germany’s Factory Orders and the Eurozone Sentix Investor Confidence survey scheduled for release later on Monday. These reports were in focus as potential catalysts for additional volatility in the common currency.
Middle East Tensions and Safe-Haven Dollar Demand
Geopolitics remained a key driver for global markets. U.S. President Donald Trump said on Sunday that Israel should not respond militarily to Iran following its missile barrage, warning that any retaliation would “blow up” a deal involving all three parties. “We don’t need another one,” Trump told Axios after the Iranian attack before saying he planned to call Israeli Prime Minister Benjamin Netanyahu.
According to Iranian officials, further strikes would follow if Israel continues its operations in Lebanon. This came after a deadly Israeli strike on Beirut on Sunday amid clashes with Iran-backed Hezbollah.
Any indication that the conflict in the Middle East is intensifying has the potential to lift the U.S. dollar, as investors often seek the Greenback as a safe-haven asset during periods of heightened uncertainty. Such flows could present a headwind for EUR/USD despite recent euro strength.
ECB Rate-Hike Expectations Underpin the Euro
On the policy front, expectations for further tightening by the European Central Bank provided underlying support for the single currency. The ECB is anticipated to raise its deposit rate to 2.25% at its upcoming June policy meeting, with another hike seen as likely in September, according to a Reuters poll of economists.
This hawkish stance has helped underpin demand for the euro, with higher or rising interest rates generally seen as supportive for a currency relative to peers with lower or stable policy rates.
| Driver | Details | Potential Impact on EUR/USD |
|---|---|---|
| Spot level | EUR/USD trades near 1.1535 in early Asian session on Monday | Reflects modest euro strength |
| Geopolitical risk | Trump urges Israel not to retaliate; Iran warns of further attacks if Israel continues in Lebanon | Escalation could support safe-haven USD and cap euro gains |
| ECB policy outlook | ECB deposit rate seen rising to 2.25% in June, with another hike likely in September (Reuters poll) | Hawkish expectations support the euro |
| Upcoming data | Germany Factory Orders; Eurozone Sentix Investor Confidence due Monday | Could influence short-term euro sentiment |
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