EUR/USD slipped to about 1.1655 in early Asian trade on Thursday, with the Euro weaker against the US Dollar. The move followed uncertainty over a two-week US–Iran ceasefire.
Reuters reported sporadic fighting in the Middle East, including in Lebanon. Iranian officials said this breached the less than day-old truce and called it “unreasonable” to continue talks on a lasting deal with the US.
Us Inflation Outlook
The US Consumer Price Index report for March is due on Friday. Headline CPI is expected at 3.3% year on year, up from 2.4%, linked to higher oil prices during the war.
In the euro area, European Central Bank officials said a rate rise in April remains possible, though June is seen as more likely. Markets are now priced for two rate rises and over a 50% chance of a third by December, according to Reuters.
The Euro is used by 20 EU countries in the Eurozone and, in 2022, accounted for 31% of global FX transactions. Average daily FX turnover was over $2.2 trillion; EUR/USD makes up about 30% of all trades, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
Looking back to 2025, we saw the EUR/USD trading near 1.1650 amid a hawkish European Central Bank and new geopolitical tensions. Today, on April 9, 2026, the situation has evolved, with the pair now trading much lower around 1.0820. The policy divergence between the central banks has become the primary driver, moving beyond the initial shock of the Middle East conflict.
Policy Divergence Drivers
The persistent, low-level conflict in the Middle East continues to provide a subtle, underlying bid for the safe-haven US Dollar. More importantly, US inflation remains sticky, with the latest March 2026 CPI data showing a 2.8% annual rate, preventing the Federal Reserve from signaling any rate cuts. This contrasts sharply with the outlook from a year ago and keeps the dollar strong against its peers.
Conversely, the ECB’s hawkish stance from 2025 has softened considerably as the Eurozone economy has slowed. Recent data shows German manufacturing PMI has contracted for six straight months, and March’s HICP inflation for the bloc fell to 2.2%, much closer to the target than in the US. We now see markets pricing in the possibility of an ECB rate cut by the third quarter of this year.
For derivative traders, this environment suggests continued weakness in EUR/USD. Buying puts with strike prices around 1.0700 or 1.0650 for the coming weeks offers a defined-risk way to position for a further downturn. Implied volatility has been moderate, suggesting these options may be reasonably priced for a potential move lower.
The key risk to this view is a sudden shift in central bank rhetoric or a surprisingly weak US jobs report. Therefore, we should pay close attention to the upcoming Non-Farm Payrolls data and the ECB’s next policy statement. These events are the most likely catalysts to alter the pair’s current downward trajectory.
