The euro fell against a basket of global currencies in European trading on Monday, retreating from a two-month high against the US dollar as correction and profit-taking gathered pace, while demand for the US currency increased amid growing uncertainty over ongoing negotiations between the United States and Iran to reopen the Strait of Hormuz.

With global oil prices rising again, inflationary pressures on European Central Bank policymakers are increasing, strengthening expectations for a European interest-rate hike in September.

The Price

EUR/USD today: The euro fell 0.15% against the dollar to $1.1548, from an opening level of $1.1563, after recording a session high of $1.1565.

The euro ended Friday 0.25% higher against the dollar and reached a two-month high of $1.1581 following bleak US employment data.

The euro gained 0.25% against the dollar last week, marking its second consecutive weekly advance.

US dollar

The US Dollar Index rose around 0.2% on Monday, beginning to recover from a two-month low and reflecting a rebound in the US currency against a basket of global currencies.

Alongside bargain buying from lower levels, the dollar is gaining support from continued uncertainty surrounding negotiations between the United States and Iran over the Strait of Hormuz, amid reports that disagreements remain over the mechanism for regulating international shipping and security guarantees in the vital waterway.

Global oil prices

Oil prices rose more than 2% on Monday at the start of the week's trading, amid uncertainty surrounding a potential US-Iran agreement over the Strait of Hormuz and renewed concerns about the security of supplies from the Middle East.

Hormuz developments

Iran has linked the reopening of the Strait of Hormuz to US concessions on several demands, including compensation, an end to military threats, the lifting of sanctions and the termination of the naval blockade.

The Iranian-Omani agreement on shipping routes is approaching its final stages, but Tehran says the agreement alone would not mean the full reopening of the strait.

The Islamic Revolutionary Guard Corps says the strait will not reopen until the United States responds to Tehran's demands, reducing hopes for a rapid return to normal shipping traffic.

Washington continues to keep the military option on the table alongside diplomatic and economic measures, while the US administration maintains pressure on Iran to reach an agreement.

US President Donald Trump said his administration is dealing with Iran "quietly" through back channels and described the negotiations as being "like a chess match."

European interest rates

With oil prices rising, money-market pricing for the probability of a 25-basis-point European Central Bank rate hike in September increased to 45% from 35%.

Investors are awaiting further economic data from the eurozone on inflation, unemployment and wages to reassess those expectations.

Euro outlook

We expect the euro to continue declining against the US dollar if uncertainty surrounding the Strait of Hormuz persists alongside higher global oil prices.