- The euro held steady against the US dollar on Friday amidst softer market conditions and moderate risk appetite.
- President Trump’s careful stance on the Israeli-Iran situation has eased fears of immediate escalation, reducing the demand for safe-haven assets.
- The EUR/USD pair traded around 1.1510, just below its earlier peak of 1.1535, while the DXY dipped below 99.00.
The Euro (EUR) made slight gains against the US dollar (USD) on Friday, benefiting from a weaker dollar as traders reacted to a cautious geopolitical message from the White House. President Trump indicated he will make a decision regarding possible involvement in the Israeli-Iran conflict within two weeks, which seemed to quell immediate concerns about rapid military action.
The EUR/USD remained near 1.1510, easing back from a session high of 1.1535. Concurrently, the US Dollar Index (DXY) faced some pressure, settling near 99.00 and trading around 98.75, as concerns about potential US involvement in the conflict weighed on market sentiment.
In terms of economic indicators, the Philadelphia Fed Manufacturing Index held steady at -4.0 for June 2025, unchanged from May, defying market expectations for a smaller decline to -1. This suggests that manufacturing activity in the area continues to be sluggish, impacted by reduced demand and early signs of a cooling labor market.
The ongoing Middle East tensions are also influencing global markets, particularly crude oil prices, which have surged. This raises new concerns about inflationary pressures in the eurozone. Notably, eurozone inflation decreased for the first time in several months, falling from 2.2% in April to 1.9% in May, dipping below the ECB’s 2% target.
This week, the European Central Bank (ECB) cut interest rates for the eighth time, indicating it may be nearing the end of its easing cycle. ECB council member François Vilroy des Garhau mentioned that, barring major external shocks like fresh military conflicts, the bank could lean towards accommodation in the coming months. He added that the euro’s recent strength against the dollar could help mitigate some inflationary effects from rising oil prices.
Meanwhile, on the US front, the Federal Reserve adjusted its benchmark interest rate at its fourth consecutive meeting earlier this week to a range of 4.25%-4.50%, adopting a cautious approach as it weighs persistent inflation risks against signs of slowing economic growth. Recent data indicated that headline inflation ticked up slightly to 2.4% from 2.3% in April, while core inflation remained steady at roughly 2.8%, still above the Fed’s preferred level.
Markets are anticipating two interest rate cuts from the Fed this year, but Fed Chair Jerome Powell noted that renewed cost pressures from tariffs or new tensions in the Middle East could complicate that trajectory. Despite these policy differences, the euro continues to hold strong, buoyed by ongoing uncertainty around tariffs.
