The euro strengthened against a basket of major global currencies during European trading on Monday, extending its gains for a fifth consecutive session against the US dollar and climbing to its highest level in seven weeks as improving market sentiment followed easing geopolitical tensions in the Middle East and the halt in military exchanges between the United States and Iran.

The sharp decline in global oil prices has also eased inflationary pressure on European Central Bank policymakers, reducing expectations of a September interest rate increase.

The Price

The euro rose more than 0.25% against the US dollar to $1.1559, its highest level since June 17, after opening at $1.1528. It touched an intraday low of $1.1527.

The euro closed Friday up by less than 0.1% against the dollar, marking its fourth consecutive daily gain after stronger-than-expected inflation data from the euro area.

During July, the euro gained 0.95% against the US dollar, posting its first monthly advance in three months, supported by bargain buying and rising expectations of a European Central Bank rate hike in September.

US dollar

The US Dollar Index fell about 0.3% on Monday, extending losses for a fifth straight session and dropping to a seven-week low of 99.42, reflecting continued weakness in the US currency against a basket of major and minor currencies.

The decline comes as demand for the dollar as a safe-haven asset continues to fade amid easing geopolitical tensions in the Middle East and growing optimism that the United States and Iran could reach a peace agreement.

Global oil prices

Oil prices dropped more than 8% on Monday, approaching their lowest levels in several weeks as concerns over supply disruptions from the Middle East eased following the de-escalation of military activity around the Strait of Hormuz.

Lower global oil prices are expected to reduce inflationary pressures, reinforcing the case for the European Central Bank to leave monetary policy unchanged for an extended period this year.

European interest rates

Money markets currently price in a 60% probability that the European Central Bank will raise interest rates by 25 basis points in September.

Investors will closely watch upcoming eurozone inflation, unemployment, and wage data for further clues on the outlook for European monetary policy.

Outlook for the euro

At FXNewsToday, we expect the euro to remain in positive territory against the US dollar and other major currencies, particularly if oil prices continue to decline and inflation concerns continue to ease.

If geopolitical tensions continue to subside and a new round of peace talks between the United States and Iran is officially announced, the euro could extend its gains further and climb to fresh multi-week highs against the US dollar.