European Currencies Advance Amid Shifting Geopolitical Outlook

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The initial rise in EUR/USD and GBP/USD was driven by reports of a temporary ceasefire between the United States and Iran, which reduced demand for the US dollar as a safe-haven asset. However, over the weekend, reports emerged that negotiations had stalled, leading to a bearish gap at the start of the new trading week. Subsequently, rumours of a possible resumption of dialogue once again shifted market sentiment, restoring interest in risk-sensitive assets.

This supported a swift recovery in the euro and the pound, while also increasing pressure on the US dollar. Additional downside pressure on the dollar comes from declining Treasury yields and a reassessment of expectations regarding the Federal Reserve’s monetary policy, which continues to limit the upside potential of the US currency.

Market attention today will focus on upcoming macroeconomic releases from the euro area and the United States, including producer inflation (PPI), business activity data, and speeches from Federal Reserve officials. These factors may adjust current interest rate expectations and influence the dollar’s short-term trajectory.

EUR/USD

The pair continues to move higher following a breakout from last week’s consolidation range. The week opened with a price gap, but after a retest of support at 1.1660, the pair quickly recovered above 1.1700. Technical analysis suggests the potential for further gains towards the 1.1800–1.1830 area. However, any negative developments in US–Iran negotiations could trigger a sharp pullback towards 1.1700–1.1660.

Key events for EUR/USD:

  • today at 10:00 (GMT+3): Spain HICP
  • today at 15:30 (GMT+3): US Producer Price Index (PPI)
  • today at 20:00 (GMT+3): speech by Bundesbank representative Balz

GBP/USD

The pair is showing a similar pattern, largely mirroring the euro’s dynamics. Following the overnight gap, the price managed to break above last week’s highs and test key resistance at 1.3500. Technical analysis points to a possible move towards 1.3570–1.3600. In case of a pullback, a retest of recent levels near 1.3450–1.3470 is possible.

Key events for GBP/USD:

  • today at 11:50 (GMT+3): speech by Bank of England MPC member Mann
  • today at 19:00 (GMT+3): speech by Bank of England Governor Bailey
  • today at 19:45 (GMT+3): speech by Federal Reserve Vice Chair for Supervision Michael S. Barr

Overall, European currencies maintain an upward bias amid an unstable geopolitical environment and declining US yields. However, the current rally remains highly sensitive to developments in the negotiation process, increasing the likelihood of short-term volatility. The next directional move in EUR/USD and GBP/USD will depend on both geopolitical signals and incoming macroeconomic data.