The euro traded near 1.1760 against the US dollar on Tuesday morning in Europe, its highest level in six weeks, as demand for riskier assets stayed firm. The move came amid optimism that ceasefire talks involving the United States and Iran could make progress, lifting sentiment across global markets.
Dollar softens, equity futures extend gains
US equity futures held Monday’s gains, with S&P 500 futures trading around 6,890. At the same time, the US Dollar Index slipped to roughly 98.30, its lowest in more than six weeks, signaling broader dollar weakness against major currencies.
Traders linked the softer dollar and stronger euro partly to hopes for easing geopolitical tensions, with risk‑linked assets generally supported in early European trade.
Ceasefire diplomacy underpins risk sentiment
US President Trump and Vice President Vance said diplomatic talks with Iranian officials in Pakistan had left room for further negotiation on a lasting ceasefire. According to reports on the discussions, Tehran proposed a five‑year halt to uranium enrichment, while Washington pushed for a 20‑year suspension.
Later on Tuesday, Israeli and Lebanese representatives met in Washington at 15:00 GMT. Markets viewed the meeting as another potential catalyst for risk sentiment across currency, commodity, and equity markets.
The Washington talks concluded with a joint statement from Israeli and Lebanese officials committing to continued dialogue. This outcome delivered a fresh, albeit short‑lived, boost to risk assets and the euro.
Inflation shock tempers optimism
The positive reaction to the diplomatic news faded quickly after the release of the US March Consumer Price Index. Headline CPI came in at 3.4 percent year‑on‑year, above expectations of 3.2 percent, while core inflation, excluding food and energy, remained elevated at 3.7 percent.
The stronger‑than‑expected data complicated the outlook for Federal Reserve policy, suggesting that rate cuts may be delayed. The inflation surprise revived support for the dollar and cooled some of the enthusiasm that had driven the euro higher.
Fed and ecb move onto divergent paths
Federal Reserve Governor Bowman said in a speech that it is still not appropriate to begin cutting interest rates, stressing the need for more consistent evidence that inflation is moving sustainably back to the 2 percent target.
In contrast, minutes from the European Central Bank’s latest policy meeting showed a growing openness to rate reductions by the summer, provided wage growth continues to slow in line with projections. This emerging policy divergence between the Fed and the ECB is becoming a key driver for currency markets, shaping expectations for the euro‑dollar pair.
Euro–dollar technical outlook remains constructive
From a technical perspective, the euro‑dollar pair remains supported above its 20‑day exponential moving average near 1.1631, preserving an upward bias. The 14‑day relative strength index around 63.00 indicates steady bullish momentum without signaling overbought conditions.
Immediate support is located near the 20‑day EMA at 1.1631. A break below this level could open the way for a deeper pullback toward 1.1500. On the upside, sustained strength would bring the February 23 high at 1.1835 into focus, followed by the February peak near 1.1930.
The broader setup still favors buying on dips while the pair trades above its short‑term moving average, although the inflation‑driven reassessment of Fed policy could cap gains or trigger sharper reversals.
Balancing geopolitics and inflation risks
Market participants are weighing the short‑term lift from diplomatic progress against the more persistent drag of elevated inflation. While ceasefire headlines and regional talks can trigger rapid shifts in risk appetite, the trajectory of price growth and central bank responses will ultimately shape borrowing costs and asset valuations.
Traders are being forced to distinguish between temporary swings driven by geopolitical news and the more durable impact of inflation data on monetary policy, with the euro’s next leg likely to be decided at the intersection of these forces.
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