Middle East, Wall Street pressure euro; analysts predict ECB rate hikes

The euro is facing significant pressure, recently falling to $1.15 against the U.S. dollar, its lowest point since April. This decline reflects increased turmoil in global markets and heightened geopolitical uncertainty, which are driving demand for the dollar as a safe-haven asset.

Analysts attribute the euro's weakness to a combination of factors, including a recent "tech shock" on Wall Street and ongoing tensions in the Middle East. The potential for disruptions to global energy flows, particularly through the Strait of Hormuz, is prompting investors to hold dollars, as oil transactions are predominantly conducted in the U.S. currency. The resilience of the U.S. economy and stronger-than-expected macroeconomic indicators further bolster the dollar's appeal.

From a technical standpoint, analysts identify the $1.14 to $1.145 range as the euro's last critical support level. A break below this threshold could trigger a strong downward trend, potentially pushing the euro as low as $1.093, a level not seen since the significant market turbulence of 2025. Conversely, the primary resistance zone is near $1.21, the year's highest intraday level.

Investor sentiment reflects this volatility, with bets against the euro steadily increasing. Short-term currency market movements are highly sensitive to geopolitical developments and U.S. economic data. Despite the current unfavorable outlook, long-term market expectations for the euro are more optimistic, largely due to anticipated shifts in the European Central Bank's (ECB) monetary policy. Markets expect the ECB to begin raising interest rates, aiming to narrow the gap with U.S. rates and enhance the attractiveness of European investments.