Euro trades flat as US midterms and US-Iran developments keep traders cautious

  • EUR/USD holds steady as traders monitor US midterm elections and US-Iran developments.
  • Oil price volatility keeps inflation and interest rate expectations in focus.
  • France’s fiscal concerns add to the Euro’s headwinds as the ECB balances growth and inflation.

EUR/USD trades little changed on Tuesday amid a cautious market mood as traders watch the US midterm elections. US-Iran developments also remain in focus, leaving the US Dollar (USD) without a clear direction. At the time of writing, the pair trades around 1.1139 after briefly climbing above 1.1200 on Monday.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Oil prices remain volatile as traders react to shifts in the news flow. Crude came under pressure following unconfirmed reports that Washington and Tehran have made concessions over Iran’s nuclear programme and frozen funds, before reversing course. Earlier, prices rose after the Wall Street Journal (WSJ) reported a US strike on Iran’s Qeshm Island.

Uncertainty surrounding the negotiations keeps a geopolitical risk premium in oil prices as traders weigh hopes of diplomatic progress against the risk of further military action. Elevated energy costs risk prolonging inflation and reinforce expectations that central banks may need to maintain tighter monetary policy for longer.

The Federal Reserve (Fed) raised interest rates by 25 basis points (bps) in September before pausing in October, reaffirming its commitment to restoring price stability. Traders price in a 75% chance of another increase in December, according to the CME FedWatch Tool.

This hawkish outlook helps cushion the US Dollar’s downside. The US Dollar Index (DXY), which tracks the Greenback against six major currencies, hovers around 101.80.

For the energy-dependent Eurozone, persistently high energy costs raise the import bill and weigh on growth, while also posing upside risks to inflation. France’s fiscal concerns add another headwind for the Euro (EUR).

The European Central Bank (ECB) also held rates steady in October after delivering a total of 50 bps of increases earlier this year. For the energy-dependent Eurozone, persistently high energy costs raise the import bill and weigh on growth, while also posing upside risks to inflation. France’s fiscal concerns add another headwind for the Euro (EUR), further clouding the economic outlook and complicating the ECB’s policy decisions.