The Euro fell further against the US Dollar on Friday, with EUR/USD near one-month lows at about 1.1626. The pair was set to end the week lower as expectations for a more hawkish Federal Reserve lifted the Dollar and US Treasury yields.
Energy prices rose on supply disruption risks in the Middle East, worsening inflation prospects across major economies. In the US, inflation rose sharply for a second straight month in April, while consumer spending stayed firm.
Recent US data supported the view that the Fed may keep rates unchanged in the next few months. Traders also priced a near 50-50 chance of a rate rise at the December meeting, based on the CME FedWatch Tool.
The US Dollar Index moved above 99.00 to its highest level since 8 April. The 10-year US Treasury yield rose to a one-year high.
Eurozone inflation also picked up in April. Markets priced in at least two European Central Bank rate rises this year, with a June increase fully priced in.
US-Iran talks remained stalled and the Strait of Hormuz stayed under blockade, keeping oil prices high. Donald Trump said he would back a 20-year suspension of Iran’s nuclear programme if it was “real”, and warned of renewed US strikes without a deal.
The current market environment is showing echoes of what we saw around this time last year. In 2025, we saw expectations of a hawkish Federal Reserve push the US Dollar Index above 99.00 and drop the EUR/USD pair toward 1.16. Today, on May 15, 2026, the dynamic of diverging central bank policies remains the key driver for currency markets.
A persistent gap in inflation is fueling this divergence, making the dollar a more attractive bet. The latest US Consumer Price Index (CPI) is holding stubbornly around 3.4%, while the Eurozone’s inflation rate has cooled to 2.4%. This data reinforces the view that the Fed will likely keep interest rates higher for longer than the European Central Bank, which is now signaling potential rate cuts.
For derivatives traders, this suggests that bearish positions on the EUR/USD pair could be favorable in the coming weeks. Buying put options on the Euro, with strike prices below the current 1.08 level, offers a defined-risk strategy to profit from further dollar strength. This allows traders to benefit from a potential decline in the pair while capping their maximum loss.
Last year’s tensions in the Strait of Hormuz kept energy prices high and created market uncertainty. Today, ongoing conflicts in the Middle East are similarly creating volatility, keeping Brent crude oil above $80 a barrel. Traders should monitor implied volatility in currency options, as unexpected geopolitical news could cause sharp price swings in either direction.
The attractiveness of US debt continues to support the dollar, much as it did in 2025 when yields hit one-year highs. The benchmark 10-year US Treasury yield is currently near 4.5%, offering a significant premium over German bonds. This yield differential should continue to attract capital flows into the US, putting downward pressure on the euro.
Looking ahead, we must closely watch upcoming inflation reports and central bank commentary for any shift in tone. Any sign that US inflation is cooling faster than expected could quickly reverse the dollar’s upward trend. Conversely, continued resilience in the US economy would likely strengthen the case for shorting the euro.
