Euro Rises on Middle East Ceasefire Optimism

The euro climbed to $1.175 as cautious optimism grew over a potential Middle East resolution following the extension of the ceasefire. US President Trump indefinitely prolonged the ceasefire with Iran, despite stalled talks and the ongoing US naval blockade in the Strait of Hormuz. He acknowledged Pakistan’s call for restraint as mediator but insisted the blockade would remain unless Iran concedes. Iran’s Tasnim news agency, however, reported signs of possible US flexibility on the issue. Meanwhile, expectations for European Central Bank rate hikes have been slightly scaled back, though two increases are still anticipated this year. The shift reflects easing pressure from lower oil prices and the uncertain but extended US-Iran ceasefire.

The euro traded just below $1.18, pulling back from last week’s three-week highs, as investors closely monitored escalating Middle East tensions and the European Central Bank’s cautious outlook. US President Donald Trump confirmed that the two-week ceasefire between Washington and Tehran will expire Wednesday evening, but Iran’s state broadcaster IRIB denied reports that an Iranian delegation had traveled to Pakistan for talks with the US, contradicting earlier claims. Meanwhile, Eurozone investor sentiment crashed to its lowest since December 2022, amid fears the conflict could disrupt energy supplies and supply chains. ECB President Christine Lagarde warned that the Eurozone’s economic outlook “remains deeply uncertain” as the Middle East conflict, including the Strait of Hormuz blockade, has disrupted Europe’s energy security, calling the supply shock “enormous.” While energy prices haven’t yet triggered the ECB’s worst-case scenario, she stressed the outlook remains fragile.

The euro traded just below $1.18 on Tuesday, retreating from last week’s three-week highs, as investors focused on escalating Middle East tensions and the European Central Bank’s cautious stance. US President Donald Trump confirmed that the two-week ceasefire between Washington and Tehran will expire on Wednesday evening, while US Vice President JD Vance and an Iranian delegation are set to arrive in Pakistan later today for peace talks. Ahead of the ECB’s upcoming monetary policy decision, where no rate changes are expected, President Christine Lagarde warned that the Eurozone’s economic outlook “remains deeply uncertain.” Lagarde warned that the Middle East conflict, including the Strait of Hormuz blockade, has disrupted Europe’s energy security, calling the supply shock “enormous.” While energy prices haven’t yet triggered the ECB’s worst-case scenario, she stressed the outlook remains fragile.