Societe Generale’s Kit Juckes notes that EUR/USD had previously rallied faster than relative rates implied on expectations of a weaker Dollar under President Trump, but now lags rate differentials as the US economy outperforms the Eurozone and retains safe-haven appeal. He argues that de-escalation in the Gulf and lower Oil prices, combined with expected ECB hikes, make further EUR/USD gains toward 1.20 likely.

De-escalation and ECB hikes support Euro

"For most of last year, and the start of 2026, EUR/USD rallied more/faster than relative rates suggested it should, in response to the belief that if President Trump wanted a weaker dollar, he could probably succeed in getting one."

"Now however, EUR/USD is lagging the rates market."

"That makes sense – the US economy is expected to grow a good bit faster than the Eurozone this year, is less vulnerable to the oil price shock and still has some safe haven status, even if the number of articles about de-dollarisation and the end of the dollar’s hegemony grows daily."

"Today’s rally towards 1.18 reverses the entire fall since the start of the US and Israeli war with Iran."

"There is a very good chance now, that if we do indeed see a fresh de-escalation of the conflict (and in particular, reopening of the Strait of Hormuz), EUR/USD will breeze back above 1.20 on a wave of positive sentiment."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)