Traders await Tuesday’s US inflation report after easing geopolitical risks reduced dollar volatility and Fed rate expectations.
EUR/USD remained rangebound as US-Iran tensions eased following President Trump’s remarks on resumed negotiations, reversing earlier dollar gains. The shift restored pre-escalation interest rate expectations, with markets now focused on Tuesday’s US CPI report for directional cues.
Prior to the de-escalation, the dollar had rallied on hawkish repricing, but the Fed’s inflation focus makes the CPI print pivotal. A stronger-than-expected reading could reignite dollar strength, while a miss may extend the recent correction on peak inflation bets. The euro, meanwhile, faces diminished ECB tightening odds after June inflation data eased.
Markets price a 35% chance of a July ECB hike, though policymakers have signaled a pause. A total of 37 bps of tightening is still priced by year-end, reflecting lingering expectations for further action, though current data supports a prolonged hold.