The euro edged lower against a basket of major currencies during Thursday's European trading session, pulling back from a seven-week high against the US dollar as investors engaged in modest profit-taking while the US dollar recovered ahead of further developments in the ongoing negotiations between the United States and Iran over the Strait of Hormuz.

With global oil prices continuing to decline, inflationary pressures on European Central Bank policymakers have eased, reducing expectations of an ECB interest rate hike at its September meeting.

The Price

The euro slipped about 0.1% against the US dollar to $1.1546 after opening at $1.1553. It reached an intraday high of $1.1560, its highest level since June 17.

On Wednesday, the euro rose 0.2% against the US dollar, marking its second consecutive daily gain as hopes for a peace agreement in the Middle East supported risk sentiment.

US dollar

The US Dollar Index rose more than 0.1% on Thursday, rebounding against a basket of major and secondary currencies after two straight sessions of losses.

The recovery came as investors awaited additional details on the peace negotiations between the United States and Iran while positioning ahead of key US labor market data that could provide stronger clues about the likelihood of another Federal Reserve interest rate hike this year.

Strait of Hormuz negotiations

Iran announced that it had reached an agreement with Oman on shipping routes through the Strait of Hormuz, marking an important step toward reopening the strategic waterway.

A final agreement to end the military escalation remains dependent on broader understandings with the United States.

US officials, including Secretary of State Marco Rubio, said progress had been made in the negotiations but stressed that key issues, particularly the management of shipping routes and potential transit fees, have yet to be resolved.

President Donald Trump said an agreement was close while maintaining pressure on Tehran to accept a broader settlement. Iran, meanwhile, continues to deny holding direct negotiations with Washington.

European interest rates

Money markets are currently pricing the probability of a 25-basis-point European Central Bank rate hike in September at below 25%.

Investors are awaiting additional eurozone data on inflation, unemployment, and wage growth to reassess expectations for the ECB's policy path.

Euro outlook

We expect the euro to remain under modest pressure against the US dollar in the near term as profit-taking continues following its recent gains.

If geopolitical tensions continue to ease and the United States and Iran announce a final agreement, the euro is likely to resume its advance against the US dollar.