The euro fell in European trade on Friday on track for the first loss in five sessions against the dollar, giving up four-year highs on profit-taking amid mounting risk aversion due to geopolitical tensions in the Middle East.

Despite the losses, the euro is heading for the second weekly profit in a row as the odds of a July European rate cut receded, while recent US inflation data boosted the odds of two Fed rate cuts this year.

The Price

The EUR/USD fell 0.6% today to $1.1511, with a session-high at $1.1614.

The euro closed 0.8% higher on Thursday against the dollar, the fourth profitt in a row, hitting a four-year peak at $1.1641 following US inflation data.

Geopolitical Tensions

Israel launched a heavy military operation against Iran, targeting nuclear facilities and ballistic missile factories and military leaders.

The Israeli army said the operation aims at preventing Tehran from developing a nuclear weapon and described it as the start of a long-term military operation, with Israel's air space closed in preparation for Iranian responses.

The US administration started to transport some of its personnel from several Middle Eastern countries and warned from heightened security risks, while spreading additional air defense systems to protect US military bases in the region.

Weekly Trades

The euro is 1.1% higher so far this week against the dollar, on track for the second weekly profit in a row.

ECB President Christine Lagarde hinted at the possible end of the current cycle of policy easing, which was in response to a combined shock such as the Covid 19 pandemic, the Ukrainian war, and the energy crisis.

According to a Reuters source, most ECB members now aim at holding interest rates unchanged in July, with the global markets now expecting just an additional 25 basis points of rate cuts by the end of the year.

The odds of a 0.25% ECB rate cut in July now stood below 30%, with traders awaiting more eurozone data and remarks by ECB officials to gather more clues.

US Rates

Recent data showed US inflation rose less than expected in May, with limited effects so far for Trumps tariffs on prices.

Following the data, traders raised their estimates for a Federal Reserve rate cut in September.

The markets now see an 80% chance of a Fed rate cut in September, with a second cut in October.