• EUR/USD slips back below 1.1500, pressured by a stronger US Dollar.
• Traders scale back rate hike bets as growth concerns from rising Oil prices outweigh inflation risks.
• Focus shifts to upcoming US data, including ISM PMI and Nonfarm Payrolls.

EUR/USD extends its losses on Monday, slipping back below the 1.1500 psychological mark as a broadly stronger US Dollar (USD) keeps the Euro (EUR) under pressure. At the time of writing, the pair trades near 1.1444, remaining on the back foot for a fifth consecutive day.

The Greenback continues to draw support from risk aversion driven by ongoing geopolitical tensions surrounding the US-Israel war with Iran and the resulting surge in Oil prices. As global crude is denominated in US Dollars, rising Oil prices tend to boost demand for the USD.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 100.54, hovering near the ten-month highs reached earlier this month.

Meanwhile, yields are declining on both sides of the Atlantic as traders reassess the monetary policy outlook. Earlier, rising Oil prices had lifted expectations that central banks might need to raise interest rates to contain inflation, prompting traders to price in potential rate hikes across major economies.

However, the focus is now shifting toward the impact of high energy prices on growth, with traders beginning to scale back earlier expectations of rate hikes.

In the United States, traders are increasingly expecting the Federal Reserve (Fed) to hold interest rates steady through 2026, after earlier pricing in nearly a 50% chance of higher borrowing costs by the end of 2026, according to the CME FedWatch Tool.

Against this backdrop, a higher-for-longer interest rate outlook and escalating Middle East tensions are expected to keep the US Dollar firmly supported, leaving EUR/USD tilted to the downside.

In Europe, traders are scaling back expectations of an immediate rate hike in April, as the Eurozone economy is seen as more vulnerable to rising energy costs due to its reliance on imports. However, markets continue to price in around two rate hikes later this year.

On the data front, Germany’s preliminary March inflation data showed a pickup in price pressures, suggesting inflation is starting to rise again, with attention now turning to Eurozone readings due on Tuesday. In the US, the focus will be on the ISM Manufacturing Purchasing Managers’ Index (PMI) and the Nonfarm Payrolls (NFP) report later this week.