Euro remains stronger despite uncertainty surrounding US-Iran talks

EUR/USD pair maintains its upward momentum for a third consecutive session, trading near 1.1390 during Monday's Asian hours. Despite this positive streak, the Euro’s (EUR) gains could face headwinds if geopolitical uncertainty sparks a flight to safety, boosting the US Dollar (USD). Market participants remain highly sensitive to evolving headlines out of the Middle East as they assess the stability of the region and its broader impact on global risk sentiment.

The primary geopolitical focus centers on the volatile situation between the United States (US) and Iran. According to a Reuters report on Sunday, the two nations have agreed to temporarily pause recent hostilities in the Gulf and renew discussions regarding their ongoing dispute over the Strait of Hormuz. This diplomatic opening follows several days of retaliatory strikes triggered on Thursday when an Iranian projectile hit a cargo vessel, leading both Washington and Tehran to accuse one another of violating a previously established June 17 interim ceasefire. Official delegations from both countries are scheduled to meet in Qatar on Tuesday to negotiate an end to the conflict.

Meanwhile, currency traders are weighing shifting monetary policy expectations for the European Central Bank (ECB) against a backdrop of easing energy prices, which have helped cool immediate inflation fears.

However, Commerzbank analysts still expect the central bank to deliver one final interest rate hike in September. According to their quantitative modeling, despite the decline in oil and gas prices, underlying inflation is projected to stick close to 3% through the end of the year because businesses are expected to gradually pass their accumulated, higher operational costs down to consumers.