Euro falls back as US Dollar recovers early losses

The Euro (EUR) retreats to near 1.1425 against the US Dollar (USD) during the European trading session on Thursday. The major currency pair falls back as the US Dollar claws back a majority of its early losses, with the appeal of safe-haven assets improving in the wake of renewed geopolitical risks.

As of writing, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades marginally lower around 101.00 after rebounding from the day’s low of 100.80.

The exchange of attacks between the United States (US) and Iran, following confirmation from President Donald Trump that the Memorandum of Understanding (MoU) with Iran is over, has lifted the safe-haven demand.

The US military forces have also attacked Iranian infrastructure, which suggests that tensions could remain prolonged.

Higher oil prices due to diminished traffic near the Strait of Hormuz have de-anchored inflation expectations again, a scenario that could discourage Federal Reserve (Fed) officials further from reducing interest rates this year.

The Federal Open Market Committee (FOMC) Minutes of the June policy meeting, released on Wednesday, also showed that policymakers continue to see “inflation as the dominant risk”, and several officials still believe further tightening could become necessary.

Meanwhile, traders have raised hawkish European Central Bank (ECB) as oil prices have increased significantly after the US-Iran went back to square.

According to a Reuters report, traders have priced in another 30 basis points (bps) increase in policy rates this year. In June, the ECB raised its key rates by 25 bps.