Euphoria often ends badly. The markets are full of optimism and expect the conclusion of a deal between the United States and Iran almost tomorrow. However, Tehran’s restrained rhetoric and a series of strong macro statistics on the United States suggest that rapid progress in resolving the conflict in the Middle East should not be expected, and it is too early to rush headlong into the pool of selling the US dollar.
Iran has driven the whole world into a corner, and it has no reason to quickly surrender to the United States before the world feels the pain. Nevertheless, financial markets are confident in the deal. American stock indexes are rising by leaps and bounds, and inflation expectations are declining as oil prices fall. As a result, derivatives have returned to the idea of a possible reduction in the federal funds rate in 2026, which puts pressure on the dollar. The odds were up to 20% at the moment, before declining after strong statistics on private sector employment from ADP.
The labor market is stabilizing, and the American economy looks definitely better than the European one. The eurozone is suffering not only from high energy prices, which it has to buy. The sword of Damocles is hovering over her as the White House increases tariffs on cars from 15% to 25%. The official version sounds like the EU’s failure to comply with the terms of the trade agreement with the United States. However, in fact, Donald Trump may be offended by the words of German Chancellor Friedrich Merz that the United States is humiliating itself with Iran.
As for the ECB’s intention to raise rates against the background of the Fed’s passivity, such actions by Frankfurt are either a hawkish bluff or a political mistake. You should not take them seriously, and even more so consider them the trump card of EURUSD.
Thus, slow progress towards resolving the conflict in the Middle East will support demand for the US dollar as a safe haven asset. The American economy looks better than the European one. The divergence in monetary policy is not the driver of the EURUSD rally due to the high risk of a political mistake by the ECB.
In such circumstances, the main currency pair is more likely to prefer consolidation than to grow rapidly. Investors will continue to catch signals about its future movement in the form of news from the Middle East or macroeconomic statistics. In this regard, the release of US labor market data for April is capable of rocking the EURUSD. The positive employment dynamics coupled with rising inflation is a combination that does not exclude a Fed rate hike.
