EUR/USD weakens below 1.1700 as Middle East tensions drive US Dollar strength

The EUR/USD pair trades with mild losses around 1.1685, the lowest since late January, during the early Asian session on Tuesday. The US Dollar (USD) gathers strength against the Euro (EUR) as escalating tensions in the Middle East boost safe-haven currencies. The preliminary reading of the Harmonized Index of Consumer Prices (HICP) from the Eurozone will be published later on Tuesday.  

The United States (US) and Israel hit thousands of targets inside Iran, continuing their joint campaign after they killed its supreme leader, Ayatollah Ali Khamenei. US Secretary of State Marco Rubio said on Tuesday that the US is preparing for a “major uptick” in attacks in Iran over the next 24 hours. 

Meanwhile, a commander in Iran’s Revolutionary Guard Corps (IRGC) stated that the Strait of Hormuz is closed and Iran will fire on any ship trying to pass. A sharp escalation in Middle East geopolitical tensions drives a flight to safety into the Greenback and creates a headwind for the major pair in the near term. 

Analysts expect the European Central Bank (ECB) to keep rates steady through at least mid-2026. Nonetheless, a spike in oil prices has led some policymakers to suggest the central bank should be prepared to move rates in either direction if economic uncertainty persists.