US dollar recoups losses after renewed US-Iran strikes. Morgan Stanley sees EURUSD at 1.1 as longs unwind, but ECB inaction and Fed hawkishness keep the pair under pressure.
Alpha Score of 58 reflects moderate overall profile with strong momentum, weak value, moderate quality, moderate sentiment.
The US dollar erased its earlier losses after the US resumed bombing Iran's facilities in response to tanker attacks in the Strait of Hormuz. Before the airstrikes, the greenback had been slipping. Traders took profits on long positions after the University of Michigan's consumer sentiment index rose in June and long-term inflation expectations eased. Two Fed rate rises in 2026 looked less certain after that data, several accounts said.
Morgan Stanley strategists said EURUSD could reach 1.1 as long-term investors unwind long positions while hedge funds build shorts. The bank's stock (MS) carries an Alpha Score of 48, classified as Mixed, reflecting the crosscurrents in the macro picture. BNY Mellon sees a potential fall below that level. The ECB is unlikely to raise rates further, the bank said, because tightening would hurt the eurozone economy.
The Fed's hawkish shift and ECB President Christine Lagarde's dovish tone have pushed EURUSD to annual lows. Investors will focus on eurozone inflation data and US jobs figures for confirmation of the downtrend. Bloomberg expects eurozone consumer prices to slow to 3% from 3.2% in June. If inflation peaks, there is no reason to tighten. That is bad news for the euro.
Improvements in the US labour market this spring gave the Fed reason to hold the federal funds rate steady. Further stabilisation would allow the Fed to raise rates as inflation picks up. The monetary policy divergence continues to support EURUSD bears. If oil prices also rise on tensions in the Middle East, the euro risks falling to $1.1.
Brent crude reacts more to ceasefire rumours than to actual attacks so far. Tehran's tanker attacks and US airstrikes have not pushed prices higher as much as talk of negotiations. If fears continue to hamper shipping through the Strait of Hormuz and slow the recovery of Persian Gulf production, prices will climb. That would support the dollar, the currency of a net energy exporter. The eurozone CPI print and US jobs data are the next scheduled tests for the pair.
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