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Middle East de-escalation weakens the US dollar and boosts the euro
The article links the dollar’s early-week drop to traders trimming net long USD exposure, alongside stronger eurozone PMI data and falling oil prices.
A ceasefire and de-escalation in the Middle East left some currency speculators offside, contributing to a downward gap for the US dollar at the start of the week. Action Forex reports that traders had built net long positions in the USD index to their highest levels since 2015, and the change in geopolitical risk reduced one argument for a more hawkish Fed stance.
The shift also coincides with improving eurozone data. The article points to the eurozone composite PMI rising back above 50, the growth versus decline threshold, and says the ceasefire has helped investors focus on that signal.
Action Forex adds that lower oil prices and reduced geopolitical risk may lessen concerns about oil-driven second-order effects on US inflation, making the upcoming Fed meeting seem more predictable. In the same framework, the piece notes that the euro’s outlook depends not only on economic momentum but also on how quickly the ECB would tighten, with at least one or two ECB tightening steps already reflected in EURUSD levels.
Finally, the article ties the dollar retreat to moves in other pairs. It says USDJPY has been supported by dollar weakness, plus rumors that the Bank of Japan could be more hawkish at its July meeting, and it cites forward pricing for a 32-basis-point rise in the overnight rate in 2026.