Rising bets on a Fed rate increase lift the USD, pressuring the EUR as Middle East tensions add to risk aversion.
The EUR/USD pair fell to 1.1380 in early Asian trading Wednesday, extending losses as markets price in a higher likelihood of a Fed rate hike. The CME FedWatch tool shows a 37.4% chance of at least a 25 basis points increase in July, up from 8.5% a week ago, following hawkish signals from last week’s Fed meeting.
Geopolitical risks in the Middle East also weighed on the Euro. Uncertainty over US-Iran negotiations and ongoing Israel-Lebanon talks kept traders cautious, as prolonged conflict could further pressure risk-sensitive assets. The USD strengthened broadly, supported by safe-haven demand.
Traders remain focused on Fed policy cues and Middle East developments, with the EUR’s near-term outlook tied to both factors. The pair’s decline reflects shifting expectations for tighter US monetary policy amid persistent global risks.