EUR/USD Rebounds Above 1.150 as Geopolitical Risk Eases

EUR/USD Breaks Back Above 1.150 as Risk Sentiment Improves

The EUR/USD currency pair has climbed back above the 1.150 mark on Friday as some of the geopolitical risk premium has been unwound. The shift comes amid a tentative de-escalation in the Middle East conflict, which had earlier pushed demand toward the safe-haven US Dollar (USD).

Fluid Middle East Developments Cap Euro Gains

• The geopolitical outlook remains highly uncertain, and while markets are cautiously optimistic, the risk of US military involvement in the region is still in play.
• As such, analysts suggest EUR/USD may struggle to retest 1.160 unless there’s a clear reduction in external tensions.

“The Middle East situation remains too fluid to make a strong directional call,” analysts note. “The general risk of US involvement may limit aggressive upside in EUR/USD.”

Macro Outlook for Eurozone Remains Quiet

• On the Eurozone front, economic indicators are limited, providing little directional support for the euro.
• The EUR/USD two-year swap rate spread has stayed stable in the 165-170bp range since the last ECB meeting, reflecting a relatively neutral rate differential outlook.

Broader European Currency Dynamics

In Norway, the Norges Bank surprised markets with a 25 basis point rate cut, diverging from consensus expectations. Tredu.com analysts had previously highlighted the growing case for easing.

“We now expect two more rate cuts from Norges Bank,” experts say, “though this doesn’t necessarily preclude a slow depreciation of the EUR/NOK pair.”

Related Reads on Tredu.com:

• Will EUR/USD Sustain Gains Above 1.150?
• Understanding the EUR/USD Swap Rate Spread
• Norges Bank Rate Cut: What It Means for EUR/NOK