EUR/USD rose for a seventh straight session on Tuesday, trading near 1.1800 and up about 0.37%. The move came as the US Dollar weakened and risk appetite improved.
Reports suggested a second round of US–Iran talks could happen this week after President Donald Trump said Iran had reached out. The shift reduced safe-haven demand for the Dollar and pushed Oil prices down from recent highs.
Dollar Weakness Drives Euro Higher
The US Dollar Index (DXY) traded around 98.00, its lowest level since 2 March. The Dollar also fell after weaker US Producer Price Index (PPI) data for March.
Headline PPI rose 0.5% month-on-month, below expectations of 1.2%, and matched the prior 0.5% reading, which was revised down from 0.7%. Annual PPI rose 4.0%, below forecasts of 4.6%, and up from 3.4% previously.
Oil prices remain elevated overall, and markets are pricing in about two European Central Bank rate rises. ECB President Christine Lagarde said Europe is not at the epicentre of the fallout and that policy will stay data-dependent, with no tightening bias.
The IMF forecast euro area growth of 1.1% in 2026 and 1.2% in 2027, down from 1.3% and 1.4%. For the US, it sees 2.3% growth in 2026 versus 2.4%, and 2.1% in 2027 versus 2.0%.
Market Focus Turns To Policy Outlook
Given the recent price action, we see the EUR/USD pair breaking above significant resistance to reach 1.1800, a level not seen since the US-Iran conflict escalated early last year. This move is fueled by a weakening US dollar as geopolitical tensions appear to be easing and producer-level inflation shows signs of cooling. Traders should view this as a potential shift in the medium-term trend, favoring Euro strength over the dollar.
The soft US Producer Price Index is a key factor, suggesting the Federal Reserve can maintain its patient stance on monetary policy. However, we must note that the latest Consumer Price Index (CPI) data released for March 2026 showed headline inflation remains sticky at 3.5%, well above the Fed’s target. This divergence between soft producer prices and elevated consumer prices complicates the inflation picture and may temper expectations for dollar weakness if consumer-facing pressures persist.
The geopolitical optimism surrounding US-Iran talks is reducing the safe-haven appeal of the dollar, but this sentiment is fragile. We recall how quickly markets reacted in 2025 when tensions first flared, causing oil to spike and bolstering the dollar. Therefore, while the current trend supports long Euro positions, derivative traders should consider hedging with out-of-the-money EUR/USD puts to protect against a sudden breakdown in negotiations.
A critical divergence is forming between market expectations and central bank commentary from the European Central Bank. Interest rate futures currently imply a 70% chance of at least two 25-basis-point rate hikes from the ECB by the end of 2026, yet President Lagarde maintains a data-dependent and non-committal stance. This setup suggests that upcoming Eurozone inflation data will be exceptionally important in either validating the market’s hawkish pricing or forcing a dovish repricing that could cap the Euro’s gains.
Finally, the broader economic outlook from the IMF tempers some of the bullish enthusiasm for the Euro. With the forecast for euro area growth trimmed to just 1.1% for 2026, the ECB may struggle to justify the aggressive rate hikes currently priced by the market, especially if economic activity shows further signs of slowing. This underlying economic weakness is a significant headwind that traders must weigh against the current positive momentum.
