EUR/USD edged up to about 1.1520 in early European trading on Monday, moving above 1.1500. The US March ISM Services PMI is due later on Monday.
The US, Iran and regional mediators are discussing terms for a possible 45-day ceasefire, according to Bloomberg citing Axios. The report said the odds of a deal within the next 48 hours are low, and President Donald Trump extended the deadline by 20 hours to Tuesday 8:00 pm EST (00:00 GMT Wednesday).
The European Central Bank has said policy will stay restrictive until inflation returns to its 2% target on a lasting basis. These messages have supported the euro.
The euro is used by 20 EU countries in the Eurozone and was 31% of all foreign exchange transactions in 2022, with average daily turnover above $2.2 trillion. EUR/USD is the most traded pair at about 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The ECB in Frankfurt sets interest rates and meets eight times per year; its key aim is price stability. Eurozone inflation is measured by the HICP, and the four largest euro-area economies account for 75% of the Eurozone economy.
Looking back to this time in 2025, we remember the optimism driving the EUR/USD above 1.1500 based on hopes for a US-Iran ceasefire. Those talks ultimately faltered, reminding us how sensitive the euro is to geopolitical risk and a flight to the safety of the US dollar. Today, with the pair trading significantly lower near 1.0850, the market’s focus has shifted from short-term geopolitical headlines to deeper economic fundamentals.
The European Central Bank’s (ECB) hawkish stance, which was a key support for the euro in 2025, has now softened considerably. With recent data showing Eurozone inflation slowing to 2.4% in March 2026, the ECB is now signaling potential rate cuts later this year. This contrasts sharply with their firm commitment to restrictive policy that we saw last year.
Meanwhile, the US economy shows more persistent inflation, with the latest Consumer Price Index (CPI) reading at 3.5%. This suggests the Federal Reserve will likely keep interest rates higher for longer than the ECB, creating a policy divergence that favors the dollar. This growing interest rate differential is a primary driver weighing on the EUR/USD pair.
For derivatives traders, this environment suggests positioning for potential further downside or range-bound trading in EUR/USD. We see value in buying put options to protect against a drop towards 1.0700, especially ahead of key US data releases like the upcoming ISM Services PMI. Given the clearer policy divergence compared to last year’s uncertainty, establishing bearish strategies appears more straightforward.
The implied volatility in the currency pair is currently lower than during the acute geopolitical tensions of 2025. This makes option strategies, such as put spreads, relatively cheaper to implement for those anticipating a gradual decline in the exchange rate. We must watch the upcoming ECB meeting minutes closely for any change in tone regarding the timing of their first rate cut.
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