EUR/USD was little changed after seven days of gains, trading near 1.1790 in Asian hours on Wednesday. It held close to 1.1800 as the US Dollar weakened on rising hopes that the US and Iran may resume talks and reach a deal that could reopen the Strait of Hormuz.
The New York Post said President Donald Trump indicated talks could restart this week and that he opposes a 20-year pause in Iran’s nuclear enrichment. Vice President JD Vance said there was “a lot of progress” in initial Iran discussions in Pakistan, with follow-up talks possibly within days.
US Producer Price Index (PPI) data also weighed on the Dollar and supported the pair. US PPI rose 0.5% month-on-month versus a 1.2% forecast, while core PPI was 0.1% month-on-month versus 0.6% expected.
On a yearly basis, US PPI rose 4% in March versus 4.6% forecast and up from 3.4% in February. Core PPI was unchanged at 3.8% year-on-year.
The Euro was supported by easing energy prices, as the Eurozone imports crude oil and natural gas. Markets are pricing modest tightening at the ECB’s 30 April meeting and two more rate rises this year.
We recall the optimism surrounding US-Iran talks in 2025, which helped lift the EUR/USD near 1.1800 by temporarily weakening the dollar. Today, with those negotiations having stalled and renewed tensions in the Strait of Hormuz, the dollar is again acting as a primary safe-haven asset. This has pushed the EUR/USD down to around 1.0750, a significant shift in market dynamics.
Last year’s soft US Producer Price Index data fueled bets on Fed easing, but the narrative has completely inverted. The latest March 2026 inflation data showed core CPI remaining stubbornly high at 3.5%, forcing the Federal Reserve to signal rates will stay higher for longer. In stark contrast, the European Central Bank has already begun its easing cycle with a recent rate cut, creating a clear policy divergence that favors the dollar.
The potential for lower energy prices provided significant support for the Euro in 2025, as the Eurozone is a major net energy importer. With WTI crude now trading above $90 a barrel due to geopolitical risk, those benefits have evaporated and are instead creating a headwind for the European economy. This renewed pressure on energy costs makes further ECB rate cuts more likely, weighing on the Euro.
Given this backdrop, strategies should pivot from the bullish positioning that was appropriate in 2025. With implied volatility on EUR/USD options rising, traders should consider strategies that benefit from a stronger dollar and potential downside in the pair. This could involve buying EUR/USD puts to hedge or speculate on a further decline towards the 1.0500 level seen in late 2023.
