The Euro (EUR) strengthened notably against the US Dollar (USD) and British Pound (GBP) on Monday, buoyed by a revival of risk-on sentiment in global markets following a pause in military aggression between the United States and Iran [1][2]. The EUR/USD pair traded 0.36% higher near 1.1410 during the European session, while the US Dollar Index (DXY) fell 0.25% to around 101.20, reflecting diminished safe-haven demand for the Greenback [1]. S&P500 futures also rose nearly 1% to 7,485, further underscoring the improved risk appetite [1].
The Euro's gains were supported by a decline in oil prices, with Brent crude dropping about 9% from last week's highs to $87.40 per barrel, easing concerns for Eurozone economies that are net oil importers [2]. The EUR/GBP pair advanced to the 0.8540 area, maintaining a bullish trend from mid-July lows at 0.8455, with bulls eyeing resistance at 0.8555 and higher targets at 0.8565 and 0.8575 [2]. Technical indicators such as the Relative Strength Index (RSI) around 60 suggest positive momentum, although the MACD has slipped marginally into negative territory [2].
On the policy front, UOB strategists noted that the European Central Bank (ECB) left all three policy rates unchanged at its July 23 meeting, keeping the deposit rate at 2.25% [3]. However, comments from ECB Governing Council member Gediminas Simkus indicated that a rate increase remains more likely than a hold, supporting the Euro against the US Dollar [3]. UOB now expects one final 25 basis point ECB hike in September, taking the deposit rate to 2.50%, followed by an extended pause, but with risks skewed toward further tightening if energy prices remain elevated [3].
In the US, investors are awaiting the Federal Reserve's monetary policy announcement on Wednesday, with expectations that rates will remain unchanged at 3.50%-3.75%. Fed Chair Kevin Warsh has indicated that forward guidance is not well-suited to the current policy environment, suggesting limited impact from the upcoming press conference [1]. Meanwhile, in the UK, attention is on the Bank of England's policy decision, with rates expected to be held steady and investors closely watching for signals of future moves [2].
Looking ahead, Eurozone investors are awaiting the preliminary Harmonized Index of Consumer Prices (HICP) data for July, due Friday, which could significantly influence ECB policy decisions [1].
CONCLUSION
The Euro's strong performance is driven by improved risk sentiment following a pause in US-Iran hostilities and a hawkish tilt from the ECB, with markets anticipating a possible rate hike in September. Declining oil prices have also provided relief to the Eurozone, supporting the currency's gains. Investors remain focused on upcoming central bank decisions and key inflation data for further direction.