Why is the Euro losing ground as the US Dollar advances despite growing US-Iran deal bets?

• EUR/USD slips as US Dollar strength outweighs rising speculation over a possible US-Iran agreement.
• The Euro could find underlying support as crude oil prices decline and markets stabilise.
• Political instability in France and doubts surrounding ECB leadership weigh on the Euro.

Renewed US Dollar (USD) strength is weighing on EUR/USD, which trades near 1.1220 in Tuesday’s Asian session after posting modest gains a day earlier. The Dollar is advancing even as speculation builds over a possible agreement between Washington and Tehran. Traders, meanwhile, are looking ahead to the United States (US) Consumer Price Index (CPI) release.

Optimism surrounding diplomatic efforts to resolve the Middle East conflict has pushed crude oil prices to their lowest since August. Regional attacks have continued, but US President Donald Trump suggested additional strikes against Iran might be unnecessary, while maintaining that the US remained "locked and loaded." Pointing to progress towards ending the war, Trump said Iran was "militarily, effectively over" and that the prevailing situation was being maintained largely at neighbouring nations’ request.

Tuesday’s release of October US CPI figures is the main economic focus. Forecasts put headline inflation at 3.9% year-on-year, up from 3.7%, and core inflation at 2.8%, compared with 2.6% previously. Expectations of a Federal Reserve interest rate increase at its December meeting have firmed following last week’s Nonfarm Payrolls report. The CME FedWatch Tool assigns an 82% probability to a hike, against 76% last Friday.

A hawkish tone has also emerged from recent remarks by Fed officials. Richmond Fed President Thomas Barkin emphasised inflation risks within the central bank’s mandate. Chicago Fed President Austan Goolsbee, meanwhile, said faster services inflation challenges the view that tariffs alone are responsible for elevated prices.

Pressure on EUR/USD also reflects challenges facing the Euro (EUR): persistent political and fiscal instability in France, alongside uncertainty surrounding reports that ECB President Christine Lagarde could leave her post early. Even so, cheaper oil and a recovery in market sentiment after last week’s turbulence could provide some underlying support for the Euro in the period ahead.

Can markets steady after the US course correction and tech sell-off?

Global markets are trying to regain their footing, according to strategists at Societe Generale, following what they call “the mother of all US course corrections.” The description echoes historian Simon Schama in the Weekend FT. In their assessment, the “$3.2tn Tech carnage” has shaken sentiment and “spooked investors to rush for the safety of government bonds, the Swissie and the dollar,” shaping trading conditions as market participants review their appetite for risk and demand for safe havens.