The Euro (EUR) came under pressure against the US Dollar (USD) on Thursday, continuing to trade below 1.1500 support, and declining further to where it was trading nearer to 1.1450, at its lowest point since late May. The Euro (EUR) is under bearish pressure in the markets with increased geopolitical risk, alongside the Federal Reserve being hawkish and increased safe-haven flows into the US Dollar (USD).
Investor sentiment is deteriorating largely due to the growing potential for an Israel–Iran conflict and worries around more direct US military involvement. The comments made by said Fed Chair Jerome Powell around inflation risks and dollar increased dollar strength added more downward pressure on the common currency, which brought along both renewed demand for US dollar safe-haven assets and less dovish interest rate expectations.
Risk-Off Mood Intensifies as Trump Warns of Strike on Iran
The global markets remain jittery as President Trump indicated possible military action against Iran. According to Bloomberg, US officials are apparently preparing for military action over the weekend. Iran’s top leadership (Ayatollah Ali Khamenei) has issued stern threats of “irreparable damage” in response.
These events are spurring demand for safe haven assets in US Dollars, especially after the markets have begun to worry about supply disruptions in crude oil and disruptions to global growth.
Fed Stays on Hold, But Powell Delivers Hawkish Blow
The Federal Reserve held interest rates steady at 4.25%–4.50% on Wednesday, with two cuts still projected in the second half of 2025; however, the Summary of Economic Projections (SEP) downgraded GDP growth to 1.4% and pushed up PCE inflation expectations to 3.0%.
Powell lessened the likelihood of rate cuts by bringing up that the Fed is “well positioned to wait,” where “wait” is based on increased inflation pressure from tariffs as well as strong labor market factors. The US Dollar Index (DXY) shot higher as investors took in the Fed’s constructive outlook, but with a cautious tone through continued global uncertainty.
Eurozone CPI Eases, Fails to Lift the Euro
May CPI data for Europe confirmed headline inflation at 1.9% and core CPI decelerating to 2.3% from 2.7% in April. Both showed signs of easing in price pressures and had little impact on the Euro as the market focused on geopolitical headlines and US Central Bank announcements.
With the US equity markets closed for a public holiday, low liquidity can amplify volatility during European hours especially if any new headlines appear around Middle East developments.
Conclusion
With tensions in the Middle East continuing to rise, and the Fed’s cautious stance confirmed, EUR/USD is likely to remain offered in the near term. As a result, traders should follow geopolitical headlines and ECB crockery and speakers closely as sentiment driven moves can overwhelm macro data in thinly traded sessions.
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