Euro nears one-year low as Middle East tensions weigh
The euro USD exchange rate opened the week near $1.14, close to a one-year low, as escalating US-Iran tensions and Strait of Hormuz uncertainty pushed oil higher and lifted safe-haven demand for the US dollar. By Tuesday, EUR/USD recovered modestly to about 1.1385, but gains may stay capped ahead of US CPI data.
Currency markets entered mid-July with energy prices once again setting the tone. Renewed fighting around the Strait of Hormuz, a vital oil chokepoint, has reinforced the dollar's appeal while weighing on energy-importing currencies including the euro.
Key Takeaways
- EUR/USD opened near $1.14, approaching its June one-year low, before edging up to about 1.1385 on Tuesday.
- US-Iran clashes and Hormuz closure threats pushed oil higher and boosted safe-haven dollar demand.
- Markets are pricing further ECB rate hikes, with two more moves expected over the next year.
- Tuesday's US June CPI report is the next major catalyst for the euro USD exchange rate.
Why did the euro USD exchange rate fall near a one-year low?
The euro opened the week at around $1.14, nearing its one-year low from June, as investors reacted to escalating Middle East tensions, according to TradingView. Oil prices surged after another round of US strikes on Iran, with both Washington and Tehran disputing control of the Strait of Hormuz.
US Central Command reported striking dozens of targets to weaken Iran's ability to threaten shipping in the waterway. Iran announced on Sunday that the strait would remain closed "until further notice." That uncertainty fed inflation concerns and encouraged flows into the US dollar as a safe haven.
How are Middle East tensions shaping EUR/USD now?
On Tuesday, the EUR/USD pair posted modest gains near 1.1385 during Asian trading hours, holding above 1.1350, according to FXStreet. Still, traders said potential upside may be limited amid renewed US military strikes against Iran.
US President Donald Trump said the United States is reinstating a blockade of Iranian maritime traffic and would impose a 20% toll on cargo shipped through the Strait of Hormuz. US forces resumed strikes on targets including Bandar Abbas and islands in the Gulf, while Iran struck two UAE tankers. Each new escalation tends to lift the greenback and cap euro recovery.
What is the ECB outlook as oil prices climb?
Rising fuel costs tied to the Iran conflict have revived inflation worries in the eurozone. The European Central Bank raised interest rates in June for the first time since 2023, and markets now expect two additional hikes over the next year, with the first likely in September, TradingView reported.
ECB policymaker Yannis Stournaras warned on Friday that the central bank is "back to square one" in its battle against high inflation. Even so, FOREX.com notes that as oil and natural gas prices climb, investors remain reluctant to price out further Federal Reserve tightening, giving the dollar an added tailwind over energy-importing currencies.
What could move the euro USD exchange rate next?
Traders are focused on Tuesday's release of US June Consumer Price Index inflation data. FXStreet said a softer inflation outcome could delay the case for US interest rate hikes and undermine the dollar against the euro. A hotter-than-expected print would likely reinforce dollar strength.
For broader forex and macro coverage, see our Fintech & Crypto Alerts section. Near-term direction for EUR/USD will hinge on whether Middle East risks keep oil elevated and whether US inflation data shifts Fed expectations.