The euro advanced against a basket of major currencies during European trading on Tuesday, resuming its upward trend after a brief pause in the previous session and moving back toward its highest level in seven weeks against the US dollar as investors awaited fresh developments in negotiations between the United States and Iran.
Following a more than 7% plunge in global oil prices at the start of the week, inflationary pressures on European Central Bank policymakers have eased, reducing market expectations for another ECB interest rate hike in September.
The Price
The euro rose 0.1% against the US dollar to $1.1515 from an opening level of $1.1506, after touching an intraday low of $1.1502.
The single currency closed Monday down 0.2% against the dollar, its first daily decline in five sessions, as traders took profits after it reached a seven-week high of $1.1559 earlier in the day.
US dollar
The US Dollar Index slipped more than 0.1% on Tuesday, resuming its decline after a brief pause on Monday and moving back toward its seven-week low of 99.42 as the greenback weakened against a basket of major currencies.
The decline reflects softer demand for the US dollar as a safe-haven asset ahead of key US labor market data that could provide important clues about the outlook for interest rates later this year.
Oil prices
Oil prices rebounded more than 1% on Tuesday in a technical recovery after plunging more than 7% on Monday, supported by the halt in military strikes between the United States and Iran and the launch of negotiations aimed at resolving the Strait of Hormuz crisis.
Developments in the Iran conflict
Diplomatic efforts remain underway to reach a new agreement that would preserve the current halt in military exchanges between the United States and Iran.
US President Donald Trump postponed a planned large-scale military strike against Iran to allow diplomatic efforts to continue.
Trump said negotiations with Iran have begun, describing them as the "last chance" to avoid further military escalation.
Tehran denied holding direct negotiations with the United States, saying ongoing contacts are limited to Oman and focus exclusively on maritime security in the Strait of Hormuz.
Regional mediation efforts continue in search of a mechanism to fully restore shipping through the strategic waterway, although no final agreement has yet been announced.
European interest rates
Money markets currently price the probability of a 25-basis-point interest rate increase by the European Central Bank at its September meeting at around 60%.
Investors will continue to monitor upcoming eurozone data on inflation, unemployment, and wages to reassess expectations for the ECB's next policy move.
Economic Outlook
We expect the euro to remain supported against both the US dollar and a broader basket of currencies, particularly as easing inflation concerns reduce pressure on the European Central Bank.
If geopolitical tensions continue to subside and a new round of US-Iran peace negotiations gains momentum, the euro could extend its current gains against the US dollar.