Geopolitical risks in the Middle East weigh on the Euro as traders seek safety in the US Dollar amid escalating conflict concerns.
The EUR/USD pair fell to around 1.1575 early Tuesday, ending a three-day rally as investors reacted to heightened US-Iran tensions. Reports of an incident in the Strait of Hormuz, a critical oil transit route, fueled concerns over supply disruptions and broader regional instability.
Prior to the decline, the pair had traded near 1.1600, supported by softer US economic data that reduced expectations for a Federal Reserve rate hike in September. Markets now price a 35% chance of a September hike, down from 47% a month earlier, following weaker retail sales and inflation figures.
Safe-haven demand for the USD intensified after US President Donald Trump signaled no interest in renewing an expiring agreement with Iran. Iran’s Foreign Ministry cited security complexities and US sanctions as obstacles to a deal, further straining relations.