The Euro rose against the US Dollar on Thursday, with EUR/USD near 1.1676 and posting a fourth straight daily gain. The move came as the Dollar stayed weak after a US-Iran ceasefire and hopes of de-escalation.
Trading was cautious due to doubts about how long the ceasefire will hold. The US Dollar Index (DXY) was around 98.93 after falling to a one-month low near 98.50 on Wednesday.
Key Data And Market Reaction
US data drew limited market reaction. Core PCE inflation rose 0.4% month-on-month in February, while the annual rate eased to 3% from 3.1%.
Final Q4 GDP growth was revised down to 0.5% from 0.7%. Initial Jobless Claims were 219K versus forecasts of 210K.
Markets are now focused on US CPI due on Friday. Economists expect headline CPI at 0.9% month-on-month, up from 0.3% in February, and annual inflation at 3.3% versus 2.4%.
Attention is also on US-Iran talks due on Saturday in Pakistan. Uncertainty persists after Iran said three points of the agreement were violated following Israeli strikes on Lebanon.
Strategy And Risk Management
Looking back to early 2025, we saw the Euro push towards 1.1676 against the dollar, driven mostly by a fragile US-Iran ceasefire. That geopolitical risk was the main story, overriding economic data and pressuring the dollar. Today, the market’s focus has shifted decisively from those temporary geopolitical fears to more persistent economic realities.
The slow disinflation process we watched in 2025 has stalled, with the latest March data showing US CPI is stubbornly high at 3.5%, well above the Fed’s target. This persistent inflation has solidified the Federal Reserve’s “higher for longer” interest rate policy. Consequently, expectations for rate cuts this year have been drastically reduced.
This has strengthened the US dollar, pushing the EUR/USD pair down to around 1.0850 from those highs we saw last year. The interest rate differential is now firmly in the dollar’s favor, as the European Central Bank appears more likely to cut rates sooner than the Fed. For the coming weeks, this suggests selling into any Euro strength remains the dominant strategy.
Given this, we should be looking at options to manage risk around key US data releases, especially inflation reports. Implied volatility for the EUR/USD pair tends to rise ahead of these events, creating opportunities to buy straddles or strangles to profit from a large price move in either direction. This allows us to capitalize on the market’s reaction without betting on the specific outcome of the data.
While the focus is on economics, the geopolitical tensions of 2025 serve as a reminder of background risks. Any unexpected flare-up in the Middle East could trigger a rapid flight to safety, causing a sharp, albeit likely temporary, reversal in the dollar’s strength. This tail risk is worth considering when structuring positions, perhaps by holding some out-of-the-money call options on the Euro as a cheap hedge.
