EUR/USD continues to exhibit weakness as the US Dollar maintains its strength in light of the mixed signals regarding the US-Iran ceasefire. Iran resists US peace proposals, constraining expectations for a ceasefire. Concerns over inflation driven by oil are increasing expectations for a rate hike by the ECB, while the Fed is anticipated to maintain current rates. The Euro is experiencing pressure against the US Dollar on Wednesday, as the Greenback maintains strong support amid mixed headlines regarding US-Iran ceasefire negotiations. As Washington seeks a diplomatic breakthrough, the uncertainty surrounding Tehran’s response remains a key factor influencing demand for the safe-haven Greenback. Currently, EUR/USD is positioned at approximately 1.1585, reflecting a decline of about 0.20% for the day. Meanwhile, the US Dollar Index, which tracks the Greenback’s value against a basket of six major currencies, is 99.40 after marking an intraday low of 99.07.
Iran has shown minimal inclination to conform to US-led initiatives, as reported that Tehran intends to resolve the conflict solely on its own conditions. A high-ranking political-security official stated that Iran “will not allow Trump to dictate the timing of the war’s end,” emphasizing that any resolution will occur solely when Iran’s conditions are fulfilled. Iran has established definitive prerequisites for any agreement. These encompass a cessation of attacks and assassinations, assurances that the conflict will not resume, compensation for war damages, a conclusion to hostilities across all regional fronts, and acknowledgment of its authority over the Strait of Hormuz. This follows reports that the United States has put forward a 15-point plan, which encompasses a one-month ceasefire aimed at initiating negotiations.
The proposal reportedly includes restrictions on Iran’s nuclear program along with assurances to maintain the Strait of Hormuz’s accessibility in return for possible sanctions relief. The conflicting indicators from both parties imply that a significant advancement is improbable in the short term, increasing the likelihood of an extended dispute. This situation is sustaining concerns regarding oil-driven inflation and complicating the policy outlook for major central banks. Market participants are currently factoring in two rate increases from the European Central Bank, while the likelihood of Federal Reserve rate reductions this year has been mostly eliminated, as there is a growing consensus that the Fed will maintain its rates until 2026.
However, a poll published on Wednesday indicated that among 60 economists, 38 anticipate the ECB will maintain its deposit rate at 2.00% this year, while 21 now foresee at least one rate hike in 2026. Earlier in the day, ECB President Christine Lagarde stated, “the ECB won’t act before it has sufficient information,” further noting that “if the shock gives rise to a large though not-too-persistent overshoot of our target, some measured adjustment of policy could be warranted.” She also remarked, “We must identify when higher energy costs risk spilling over into broad-based inflation.”