EUR/USD Strengthens Above 1.0900 Amid Softer US Dollar, Geopolitical Risks in Focus

The EUR/USD pair rebounds to around 1.0935 during Thursday’s Asian trading session, breaking a two-day losing streak. A weaker US Dollar (USD) supports the pair, although rising geopolitical risks may limit further gains. Market sentiment remains cautious, with attention on the upcoming US Initial Jobless Claims report.

Last week’s weaker-than-expected US employment data fueled speculation of more significant interest rate cuts by the Federal Reserve (Fed), with markets increasingly betting on a 50 basis point cut at the Fed’s September meeting. The FedWatch tool indicates that the probability of this larger cut is now close to 83%.

On the European front, European Central Bank (ECB) policymaker Olli Rehn suggested on Wednesday that the ECB could consider further rate cuts if inflation appears to be slowing. The ECB held rates steady in July, with President Christine Lagarde stating that the decision for September remains open.

Traders are also eyeing the German Harmonized Index of Consumer Prices (HICP) for July, expected to remain steady at 2.6% year-over-year.

Meanwhile, escalating geopolitical tensions in the Middle East, particularly involving Iran and Israel, are causing market caution. CNN reported late Wednesday that Iran and its allies might be preparing for a retaliatory strike against Israel, potentially influencing risk-sensitive assets like the Euro (EUR).