The Euro rose against the US Dollar on Friday, with EUR/USD gaining for a fifth day as the US-Iran ceasefire improved risk sentiment. EUR/USD traded near 1.1736, its highest level since early March, while the US Dollar Index was about 98.55, set for its biggest weekly fall since January.
US inflation data showed higher prices as rising oil costs fed through. The Consumer Price Index rose 0.9% month-on-month in March from 0.3%, and increased to 3.3% year-on-year from 2.4%, matching forecasts.
Fed Policy Expectations
Core CPI, which excludes food and energy, rose 0.2% month-on-month in March versus expectations of 0.3%. It rose to 2.6% year-on-year from 2.5%, below the 2.7% forecast.
The data supports expectations that the Federal Reserve will keep rates unchanged in the near term. Markets are watching for clearer evidence that inflation is moving towards the Fed’s 2% target before any rate cuts.
A two-week ceasefire between the US and Iran reduced fears of a wider conflict, with talks in Pakistan due over the weekend. A reopening of the Strait of Hormuz and lower oil prices could ease inflation pressure and affect the Dollar’s direction.
We remember this time last year, when the market was navigating a tricky mix of geopolitical relief and stubborn inflation. That brief US-Iran ceasefire in 2025 had everyone optimistic, pushing the Euro up even as US headline inflation was hot. The key, however, was the softer core CPI reading which hinted at what was to come.
Derivative Positioning Outlook
That period of Fed patience lasted through much of 2025, but the underlying economic strain eventually showed. We finally saw the first rate cut in February 2026, a move that markets had been anticipating for months. This pivot has set the tone for the current trading environment.
Now, with the latest March 2026 jobs report showing a slowdown to just 150,000 new jobs, we see clear evidence of a cooling US economy. This has solidified market expectations for at least two more rate cuts from the Fed before the end of the year. Consequently, the path of least resistance for the US Dollar appears to be lower.
For derivative traders, this outlook suggests positioning for further US Dollar weakness against the Euro. Buying medium-term EUR/USD call options, perhaps with expirations in the third quarter, looks attractive. This strategy allows us to capture potential upside in the pair, which is currently trading near 1.2150, while defining our maximum risk.
This environment feels similar to the post-2008 period, where a data-dependent Fed slowly eased policy to support a fragile recovery. While the main trend seems clear, the lingering uncertainty from the ongoing US-Iran negotiations in Pakistan keeps a floor under implied volatility. This makes defined-risk option strategies more prudent than holding outright long futures positions.
