Euro Climbs to 7-Week High

The euro strengthened above $1.157, reaching its highest level since June 16, as the dollar weakened sharply following a disappointing US jobs report that reduced expectations of further Federal Reserve rate hikes. Meanwhile, easing oil prices reinforced expectations that inflationary pressures in the Euro Area will continue to moderate. Investors also monitored developments surrounding the Strait of Hormuz, with President Donald Trump saying negotiations between Iran and Oman were “moving along,” although no agreement has yet been finalized. A deal on managing the strategic waterway is seen as crucial to restoring energy flows, which have remained below pre-war levels amid continued regional tensions. A reopening could also help pave the way for broader negotiations aimed at ending the conflict. Against this backdrop, the European Central Bank left interest rates unchanged in July after raising its key rate by 25 basis points in June, its first increase in three years.

The euro traded around $1.152 on Friday, slightly below Wednesday’s seven-week high of $1.155, as investors assessed the outlook for energy prices and monetary policy. Oil prices remained lower for the week but extended their gains over the past two sessions, with renewed supply concerns raising fears that higher energy costs could keep inflation elevated. Iran and Oman are reportedly working on an agreement to establish transit routes through the Strait of Hormuz, although no deal has yet been announced. Concerns intensified after Iran published a restrictive draft plan that could limit access for US and Israeli vessels and require compensation from countries it considers hostile. Still, investors remain hopeful that a deal to reopen the waterway would eventually lower oil prices and ease inflationary pressures. Meanwhile, the ECB left rates unchanged in July following a 25-basis-point hike in June, its first increase in three years, amid renewed energy-driven inflation pressures.

The euro changed hands at around $1.154, remaining close to a seven-week high as easing energy prices supported expectations that inflationary pressures in the Euro Area will continue to moderate. Sentiment improved after Iran and Oman agreed on a proposed shipping corridor through the Strait of Hormuz, raising hopes that the critical waterway could soon reopen and help restore Middle Eastern energy supplies. Brent crude remained below $80 per barrel, reinforcing expectations that lower energy costs could reduce pressure on central banks to tighten monetary policy further. Markets now fully price in just one additional European Central Bank rate hike by year-end, with roughly a 40% probability of a second increase, after the ECB left interest rates unchanged at its latest meeting. Meanwhile, stronger-than-expected German factory orders in June added to signs that Europe's largest economy may finally be gaining momentum.