The EUR/USD currency pair maintained modest intraday gains during the first half of the European session, trading just above the 1.1600 mark and up slightly over 0.10% for the day, despite remaining close to a one-week low reached earlier in the session [1]. The euro found support from increased market expectations that the European Central Bank (ECB) will raise interest rates later this month, which has acted as a tailwind for the pair [1].
Meanwhile, the US Dollar (USD) softened as the Israel-Lebanon truce reduced demand for the safe-haven currency and prompted some profit-taking after the USD's recent strong performance, which had pushed it to its highest level since April 7 [1]. However, ongoing tensions between the US and Iran, particularly regarding Tehran's nuclear program and the Strait of Hormuz, along with renewed hostilities in the Middle East, have kept geopolitical risks elevated. These factors, combined with hawkish expectations for the US Federal Reserve (Fed), have limited further USD losses and capped the upside for the EUR/USD pair [1].
Persistent geopolitical uncertainties have also supported elevated oil prices and fueled inflation concerns, reinforcing market bets that the US central bank will raise borrowing costs by the end of the year [1]. This outlook has discouraged traders from taking aggressive bearish positions on the USD, suggesting that any upward moves in EUR/USD are likely to be sold into and remain limited [1].
Looking ahead, market participants are awaiting the release of US Weekly Initial Jobless Claims and speeches from influential Federal Open Market Committee (FOMC) members, which could impact the Greenback. The primary focus, however, remains on the upcoming US Nonfarm Payrolls (NFP) report scheduled for Friday [1].
CONCLUSION
The EUR/USD pair is experiencing modest gains amid a softer US Dollar and expectations of an ECB rate hike, but upside remains limited due to persistent geopolitical risks and hawkish Fed outlook. Market participants are cautious ahead of key US economic data releases, with any significant moves likely to be constrained in the near term.