Euro slips as US Dollar strengthens despite growing bets on US-Iran deal

• EUR/USD edges down as a firmer US Dollar outweighs mounting speculation over a possible US-Iran agreement.
• Lower crude oil prices and greater market stability could provide underlying support for the Euro.
• Political uncertainty in France and questions over ECB leadership weigh on the Euro.

With the forthcoming United States (US) Consumer Price Index (CPI) release in focus, EUR/USD trades slightly lower at around 1.1220 in Tuesday’s Asian session, following modest gains a day earlier. The US Dollar (USD) is strengthening even as speculation builds over a possible agreement between Washington and Tehran.

Optimism about diplomatic efforts to bring the Middle East conflict to an end has pushed crude oil prices to their lowest since August. Attacks in the region have continued, but US President Donald Trump suggested additional strikes on Iran might be unnecessary, while keeping the US "locked and loaded." Pointing to progress towards ending the war, Trump said Iran is "militarily, effectively over" and that the existing situation is being maintained largely at neighbouring nations’ request.

October’s US CPI figures, due on Tuesday, are the key economic release for markets. Forecasts put annual headline inflation at 3.9%, up from 3.7%, with the core measure expected to edge higher to 2.8% from 2.6%. Expectations of a Federal Reserve interest rate increase at its December meeting have risen since last week’s Nonfarm Payrolls report. The CME FedWatch Tool assigns an 82% probability to a rise, compared with 76% last Friday.

A hawkish tone has also emerged from recent Fed commentary. Richmond Fed President Thomas Barkin drew attention to inflation risks within the central bank’s mandate, while Chicago Fed President Austan Goolsbee said the acceleration in services inflation challenges the view that tariffs alone explain high prices.

Persistent political and fiscal instability in France is weighing on the Euro (EUR), contributing to the decline in EUR/USD. Uncertainty surrounding reports that ECB President Christine Lagarde could leave her post early is another headwind. Even so, cheaper oil and steadier market sentiment after last week’s turbulence could provide some underlying support for the single currency ahead.

Markets Face Further Fallout From US Course Correction and Tech Sell-off

Following the upheaval in global markets, Societe Generale strategists say investors are trying to regain their footing. Echoing historian Simon Schama in the Weekend FT, they characterise the episode as “the mother of all US course corrections.” In their assessment, the “$3.2tn Tech carnage” has shaken confidence and “spooked investors to rush for the safety of government bonds, the Swissie and the dollar,” shaping trading as market participants reconsider their appetite for risk and demand for safe havens.