ING’s Francesco Pesole highlights that the Euro has been resilient on crosses but slipped versus the Dollar, with softer equities and commodity FX underperformance shaping flows. He stresses that a peace‑Hormuz deal could lift EUR/USD above 1.1800, while failed negotiations or renewed tensions risk sending the pair back below 1.1700, leaving a highly binary outlook tied to Gulf developments.

Tariff risks and Gulf scenarios

"The euro held up relatively well in the crosses yesterday, despite losing some ground against the USD. That is probably due to the impact being more visible in softer equities than significantly higher oil prices, which meant underperformance of less liquid, commodity-exposed currencies. Only NOK narrowly outperformed the dollar yesterday, although that was entirely due to a Norges Bank hike."

"We still think a peace-Hormuz deal could prompt EUR/USD to rally above 1.1800. But risks are very binary at this stage. Even without a military re-escalation, negotiations falling through again should take EUR/USD back below 1.170."

"The euro didn’t seem to suffer from Trump’s 4 July ultimatum to the EU to ratify its trade deal, threatening to hike tariffs. That’s understandable considering geopolitical volatility makes it impractical to price in a risk two months ahead. To us, however, it’s a reminder that if the conflict heads to a resolution, trade may well be next on Trump’s agenda, with the USMCA and EU on top of the list."

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