EUR/USD trades around 1.1415 at the time of writing on Wednesday, up 0.15% on the day, but its recovery remains limited after failing to break above 1.1420.
The pair maintains a cautious tone as rising geopolitical tensions in the Middle East continue to fuel demand for safe-haven assets, limiting the US Dollar (USD) downside
Investor concerns intensified after another escalation between Washington and Tehran. The United States (US) launched fresh strikes against Iranian targets, while US President Donald Trump warned that any Iranian attack on a vessel in the Strait of Hormuz would trigger US strikes against key Iranian infrastructure, including bridges and power plants. These developments continue to weigh on market sentiment and reinforce risk aversion.
Meanwhile, Oil prices continue their sharp rally, gaining more than 25% since tensions in the region escalated. The surge in energy prices is a headwind for the Eurozone economy, which remains highly sensitive to higher energy costs, limiting the Euro’s (EUR) upside potential. Despite this backdrop, the common currency continues to find support from expectations surrounding the European Central Bank (ECB) monetary policy meeting scheduled for Thursday.