European currencies posted solid gains, while the US dollar came under pressure amid easing geopolitical tensions following reports of a two-week ceasefire agreement between the United States and Iran. Reduced demand for so-called safe-haven assets acted as the primary driver, prompting a reallocation of capital flows towards risk-sensitive instruments and developed market currencies.

Additional pressure on the dollar came from a sharp decline in oil prices, driven by expectations of stabilised supply through the Strait of Hormuz. This has lowered inflation risks and reinforced expectations of a more accommodative stance from the Federal Reserve. At the same time, US Treasury yields declined, further supporting a reassessment of the Fed’s policy outlook. Against this backdrop, money markets are once again pricing in the probability of rate cuts before year-end, limiting the dollar’s recovery potential and reinforcing the current downward momentum.

EUR/USD

The EUR/USD pair broke out of its recent range, moving higher in line with broad-based dollar weakness. The price could continue rising towards 1.1740–1.1770. However, a short-term corrective pullback towards former resistance at 1.1610–1.1630 could happen. A daily close below 1.1600 may signal a return to the previous consolidation range.

Key events for EUR/USD:

• Today at 09:00 (GMT+3): German industrial production
• Today at 15:30 (GMT+3): US Core PCE Price Index
• Today at 15:30 (GMT+3): US GDP

GBP/USD

The GBP/USD pair also broke out to the upside, following the broader trend of dollar weakness. After such a sharp move, a corrective pullback towards the recent highs at 1.3320–1.3350 might be possible. A sustained move above yesterday’s high could open the way for further gains towards 1.3510–1.3560.

Key events for GBP/USD:

• Today at 11:30 (GMT+3): Bank of England Credit Conditions Survey
• Today at 12:00 (GMT+3): UK mortgage rate data
• Today at 15:30 (GMT+3): US initial jobless claims

Summary

The appreciation of European currencies is being driven by a combination of easing geopolitical tensions, declining oil prices, and a reassessment of the Federal Reserve’s policy outlook. The upside breakouts in EUR/USD and GBP/USD reflect a shift in market balance towards risk assets. However, further direction will depend on confirmation from incoming US macroeconomic data. Should downward pressure on yields persist and rate cut expectations strengthen, the dollar may continue to weaken. Conversely, stronger-than-expected data could trigger short-term stabilisation and a return to consolidation.

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