Key Moments
- EUR/USD traded back above 1.1400 in Asian hours, extending a bullish gap higher at the weekly open.
- Expectations for additional Fed rate hikes eased as crude prices dropped and inflation concerns moderated.
- Markets are cautious ahead of the upcoming FOMC decision, with TD Securities expecting rates to remain unchanged.
Risk Sentiment Lifts Euro as Dollar Loses Safe-Haven Support
The EUR/USD pair began the week on firm footing, building on a modest upside gap and pushing back above the 1.1400 level during Monday’s Asian session. The move has been driven primarily by broad-based weakness in the US Dollar (USD), as market participants reacted to renewed optimism that diplomatic efforts could bring an end to the five-month-old conflict between the United States and Iran.
The United States halted its bombing campaign late on Friday after 13 straight nights of strikes on Iranian targets, which in turn prompted Tehran to pause its retaliatory actions against US allies in the Middle East. US ambassador to the United Nations (UN) Mike Waltz said that while forces remained “locked and loaded,” President Donald Trump wants to give negotiations “a little bit of room.” The reduction in hostilities has improved overall risk appetite and reduced demand for the safe-haven Greenback.
Oil Price Slide Weighs on Fed Hike Expectations
The de-escalation in the Middle East has also triggered a sharp decline in crude oil prices, easing inflation worries among investors. With energy-driven price pressures perceived to be less acute, expectations for additional interest rate hikes by the US Federal Reserve (Fed) have softened. This shift has added pressure on the USD, pushing the US Dollar Index (DXY) away from the vicinity of the monthly high that was retested last week.
Even with the euro gaining ground, traders appear reluctant to adopt aggressive positions in EUR/USD ahead of a key policy event. The combination of shifting rate expectations and geopolitical developments is shaping a cautious tone in the currency markets.
FOMC Meeting in Focus
The Fed is due to release its latest policy decision at the conclusion of a two-day meeting on Wednesday. Market participants will be watching closely for any fresh guidance on the future policy path, given its importance for short-term USD direction. In parallel, developments in the Middle East will remain a critical driver of safe-haven flows and could influence trading opportunities in EUR/USD.
Analysts at TD Securities expect the Federal Open Market Committee (FOMC) to keep policy unchanged. According to the bank, “We expect the FOMC to keep rates unchanged.” The team acknowledges that “higher oil prices driven by Middle East tensions have increased inflation risks and strengthened the case for a rate hike,” but they argue that “more evidence is needed to win majority support.” In their view, “hawkish momentum is building,” yet Chair Warsh is “unlikely to provide guidance,” and they anticipate “two dissents from Hammack and Logan.”
Intraday US Dollar Performance vs Majors
The following table shows the percentage changes of the US Dollar against major currencies today. According to the data, the USD has been strongest versus the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.36% | -0.24% | -0.18% | -0.13% | -0.27% | -0.24% | -0.46% | |
| EUR | 0.36% | 0.09% | 0.15% | 0.21% | 0.08% | 0.13% | -0.12% | |
| GBP | 0.24% | -0.09% | 0.07% | 0.13% | -0.00% | 0.00% | -0.20% | |
| JPY | 0.18% | -0.15% | -0.07% | 0.02% | -0.09% | -0.07% | -0.27% | |
| CAD | 0.13% | -0.21% | -0.13% | -0.02% | -0.12% | -0.10% | -0.32% | |
| AUD | 0.27% | -0.08% | 0.00% | 0.09% | 0.12% | 0.05% | -0.20% | |
| NZD | 0.24% | -0.13% | -0.01% | 0.07% | 0.10% | -0.05% | -0.25% | |
| CHF | 0.46% | 0.12% | 0.20% | 0.27% | 0.32% | 0.20% | 0.25% |
The heat map reflects how each major currency has performed relative to the others. The base currency is selected from the left-hand column and the quote currency from the top row. For instance, choosing the US Dollar as the base and moving along to the Japanese Yen cell shows the percentage change for USD/JPY.
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