EUR/USD rebounds as USD eases despite strong PMIs, Hormuz tensions in focus

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EUR/USD rebounds on Thursday after trading under pressure earlier in the day, as the US Dollar (USD) loses momentum, allowing the Euro (EUR) to recover from intraday lows despite upbeat US Purchasing Managers Index (PMI) data and cautious market sentiment amid US-Iran tensions.

EUR/USD rebounds as USD loses momentum despite upbeat US PMI data.
US-Iran tensions keep sentiment cautious, leaving EUR/USD driven by USD dynamics.
Oil-driven inflation fears prompt markets to price in a higher-for-longer interest rate outlook.

At the time of writing, EUR/USD is trading around 1.1714, bouncing from an intraday low of 1.1679. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 98.57 after hitting an intraday high of 98.80.

The preliminary S&P Global Manufacturing PMI rose to 54.0 in April, beating expectations and up from 52.3 in March, marking a 47-month high. The S&P Global Services PMI also improved to 51.3, above forecasts of 50.0 and up from 49.8, reaching a two-month high, with both coming above expectations.

Meanwhile, US Initial Jobless Claims rose to 214K in the week ending April 18, above the 212K forecast and up from 208K previously.

Despite the strong PMI data, the US Dollar failed to capitalize on the upside surprise, with the pullback likely technical in nature. However, the downside should remain limited amid ongoing US-Iran tensions in the Strait of Hormuz and stalled peace talks.

In the latest developments, US President Donald Trump said on Truth Social that “we have total control over the Strait of Hormuz, no ship can enter or leave without the approval of the United States Navy.” He also added that he has ordered the Navy to “shoot any boat putting mines in Hormuz,” stating that the route is “sealed up tight” until Iran is able to make a deal.

Iran’s stance remains firm, with officials insisting that the US must remove the naval blockade, which Tehran views as a violation of the ceasefire and a key obstacle to resuming negotiations. Mohammad Bagher Ghalibaf, the speaker of the Iranian parliament and lead negotiator, said late on Wednesday that reopening the Strait of Hormuz would be “impossible” while the US and Israel committed “flagrant” breaches of the ceasefire.

As the Strait of Hormuz remains under a dual blockade, ongoing supply disruptions are keeping Oil prices elevated and inflation risks in focus. This is adding pressure on central banks to maintain a tighter monetary policy stance. Markets are increasingly pricing in potential rate hikes from the European Central Bank (ECB), while expecting the Federal Reserve (Fed)to keep interest rates on hold, a shift from earlier expectations of rate cuts.

Looking ahead, market sentiment is likely to remain sensitive to developments in the US–Iran conflict, with EUR/USD largely at the mercy of US Dollar dynamics.

Inflation FAQs

What is inflation?

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

What is the impact of inflation on foreign exchange?

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

How does inflation influence the price of Gold?

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

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