Euro Nears One-Month Low as Escalating US-Iran Tensions Spur Bearish Bets

The euro exchange rate is hovering near a one-month low as the United States deploys military forces for a possible strike on Iran, weakening market risk appetite and boosting the US dollar.

This week, the euro has fallen by about 0.8%, marking its worst performance in three months, and is set for its eighth decline in nine trading days. In the London market, the euro traded around $1.1765 against the US dollar, with the latest drop triggered by oil prices hitting a six-month high and the US increasing pressure in nuclear negotiations with Iran.

Strong US economic data has weighed on the euro by dampening market expectations for Federal Reserve rate cuts. Danske Bank foreign exchange analyst Kirstine Kundby-Nielsen pointed out that geopolitical factors now provide further support for the US dollar, and rising oil prices are driving the dollar's overall strength.

US President Donald Trump has given Iran up to 15 days to reach an agreement. The US military is deploying large-scale forces in preparation for a possible strike on this major oil-producing country, marking the largest military buildup since 2003.

ING Bank NV foreign exchange strategist Francesco Pesole stated that the euro remains overvalued, and geopolitical risks have yet to be fully priced in by the market. He noted, "This means the euro faces greater downside risk against the dollar, and if the situation escalates significantly, the exchange rate could fall to 1.16."

Options market trends are consistent with this view. The risk reversal indicator—a barometer of market positioning and sentiment—shows that short-term positions have turned the most bearish since October. Data from the Depository Trust & Clearing Corporation indicates that traders are focused on the $1.17 area—the most frequently used strike price for euro put options this week—and there is significant demand extending toward the $1.15 area.

The majority of positions will expire within the next month, suggesting that traders are focused on guarding against short-term euro weakness rather than betting on a major long-term collapse.

Editor: Guo Mingyu