Euro edges higher as US-Iran diplomacy sends oil prices tumbling

  • EUR/USD retains small gains despite a rebound in the US Dollar from its earlier lows.
  • Oil prices fall sharply on encouraging developments in US-Iran diplomacy.
  • Further interest rate increases may be necessary, ECB policymaker Peter Kažimír indicates.

At around 1.1200, EUR/USD is up 0.37% on the day at the time of writing, having touched a one-week high of 1.1237. The pair retains an upward bias on Monday, though momentum is limited as the US Dollar (USD) recoups some of its earlier losses. Traders are also weighing fresh developments in the Middle East that triggered a sharp fall in oil prices.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

According to ISNA, Iranian President Masoud Pezeshkian said the Supreme Leader had given the government certain powers over negotiations. Meanwhile, Axios reported that US President Donald Trump favours allowing more time for diplomacy with Iran. Down more than 5% on the day, West Texas Intermediate (WTI) is trading near $96 a barrel.

With cheaper oil easing some inflation concerns, US Treasury yields remain under pressure, which should restrain further gains in the US Dollar. Caution also persists ahead of Tuesday’s US midterm elections. Having recovered from an intraday low of 101.44, the US Dollar Index (DXY) stands at around 101.70, still 0.25% lower on the day. The index measures the US currency against a basket of six major peers.

October’s US ISM Manufacturing PMI increased from 54.5 to 55.5, exceeding the expected 54.6. By contrast, the Prices Paid Index fell from 77.9 to 75.2, coming in below the 77.0 forecast.

According to the CME FedWatch Tool, markets currently assign a 74% probability to a December Fed rate increase. Friday’s Nonfarm Payrolls (NFP) report could alter those expectations. Although policymakers remain willing to tighten policy further to return inflation to the central bank’s 2% target, a weaker employment report could reduce expectations of a hike.

Euro struggles to attract demand despite support from ECB guidance and France’s rating

The Dollar’s recent loss of momentum, analysts at DBS Group Research warn, “does not automatically create a compelling case for the EUR.” In their assessment, “Europe’s fiscal and political uncertainties, particularly in France, and its vulnerability to elevated energy prices complicate the search for viable alternatives” to the USD.

Even so, some concerns specific to the region have eased. DBS observes that the Euro “did find support from the European Central Bank providing clearer guidance than the Fed on the prospects of a December hike and Moody’s affirmation of France’s Aa3 sovereign debt rating,” offering a counterweight to those concerns.

October’s final HCOB Manufacturing PMI for the Eurozone stood at 52.7, exceeding both the preliminary estimate and the forecast of 52.4. Speaking on Monday, ECB policymaker Peter Kažimír said, “The question is increasingly not if further ECB action is needed but how much.” He also warned, “Markets may still underestimate what path is required.” According to Reuters, traders expect two to three ECB rate increases over the coming year.

US Dollar Performs Best Against Australian Dollar Today

Today’s percentage moves in the US Dollar (USD) against the major currencies listed are set out below. Its strongest performance was against the Australian Dollar.

USD EUR GBP JPY CAD AUD NZD CHF
USD -0.35% -0.17% 0.19% 0.00% 0.21% 0.04% -0.73%
EUR 0.35% 0.19% 0.55% 0.36% 0.57% 0.39% -0.35%
GBP 0.17% -0.19% 0.38% 0.21% 0.38% 0.20% -0.53%
JPY -0.19% -0.55% -0.38% -0.16% 0.03% -0.14% -0.90%
CAD -0.01% -0.36% -0.21% 0.16% 0.21% 0.02% -0.70%
AUD -0.21% -0.57% -0.38% -0.03% -0.21% -0.17% -0.91%
NZD -0.04% -0.39% -0.20% 0.14% -0.02% 0.17% -0.73%
CHF 0.73% 0.35% 0.53% 0.90% 0.70% 0.91% 0.73%

Percentage movements between the major currencies are displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. To read USD (base)/JPY (quote), for instance, start with the US Dollar on the left and follow that row across to the Japanese Yen; the intersecting cell gives the percentage change.