Euro at Over Two-Week High as Middle East Talks Loom

The euro traded just above $1.15, hovering near its highest level since June 16, as improving risk sentiment followed a sharp decline in oil prices. Crude fell on hopes of a US-Iran agreement to reopen the Strait of Hormuz after President Donald Trump said fresh talks with Tehran would begin on Monday, easing fears of a broader Middle East conflict. The drop in oil prices led money markets to modestly scale back expectations for further European Central Bank tightening, although a rate hike by September remains largely priced in. At the same time, stronger-than-expected eurozone data continued to support the policy outlook. The bloc's economy expanded 0.4% in the second quarter, beating forecasts of 0.2% and marking its fastest growth since early 2025. Meanwhile, annual inflation accelerated to 2.9% in July, while core and services inflation also strengthened.

The euro traded around $1.145, ending the month little changed against the US dollar as stronger-than-expected eurozone data offset mounting geopolitical tensions. The eurozone economy grew 0.4% in the second quarter, beating forecasts of 0.2% and marking its strongest expansion since early 2025. Meanwhile, annual inflation accelerated to 2.9% in July, with core and services inflation also strengthening. The data reinforced expectations for further ECB tightening, with markets fully pricing in the deposit rate reaching 2.75% by early 2027, implying two additional rate hikes, the first potentially in September. In the US, the Federal Reserve kept interest rates unchanged, although three FOMC members dissented in favor of a rate hike. Markets now assign about a 65% probability of a September increase. Meanwhile, oil prices jumped more than 20% this month after renewed US-Iran strikes, fueling concerns over energy supplies and inflation.

The euro held above $1.15, hovering near its highest level since June 16 and on track for a monthly gain of 0.8%, supported by stronger-than-expected eurozone economic data. The bloc's economy expanded by 0.4% in the Q2, surpassing forecasts of 0.2% and marking its fastest growth since early 2025. Meanwhile, inflation accelerated across the euro area's largest economies in July, reinforcing concerns that higher energy costs could spill over into services and core prices. As a result, markets fully priced in the European Central Bank's deposit rate reaching 2.75% by early 2027, implying two additional rate hikes, with the first potentially as soon as September. In the US, the Federal Reserve left interest rates unchanged this week, while three FOMC members dissented in favor of a rate hike. Markets now assign around a 65% probability of a September hike. Meanwhile, oil prices fell, as energy shipments continued through key maritime routes despite limited progress in US-Iran talks.