EUR/USD Edges Lower Below 1.1650 Amid Middle East Tensions Strengthening the US Dollar
Date: March 5, 2026
Source: FXStreet, Author: Lallalit Srijandorn
The EUR/USD currency pair has slipped below the 1.1650 mark, trading around 1.1635 in early Thursday Asian session, as rising geopolitical tensions in the Middle East bolster demand for the US Dollar. The ongoing conflict involving the United States, Israel, and Iran has intensified safe-haven flows, supporting the Greenback while exerting downward pressure on the Euro.
Geopolitical Escalation Drives Dollar Strength
The conflict in the Middle East has now entered its sixth consecutive day. Israeli military forces announced on Wednesday the initiation of a fresh wave of strikes targeting military infrastructure in Tehran. Moreover, the chairman of the US Joint Chiefs of Staff declared that American forces would begin "striking progressively deeper" into Iran. This development has heightened global uncertainty, prompting investors to seek security in the US Dollar.
As a result of the escalating crisis, traders have favored the Greenback, widely regarded as a safe-haven currency during periods of instability. This has caused the EUR/USD pair to edge lower, with market participants expecting continued volatility depending on conflict developments.
Upcoming Economic Data in Focus
Market watchers are now closely monitoring key economic reports due later on Thursday, notably the Eurozone Retail Sales and the US weekly Initial Jobless Claims data. These figures will provide further insights into economic health on both sides of the Atlantic and could influence the pair’s next movements.
ECB’s Stance Amid Rising Inflation Concerns
In the wake of recent inflation upticks, partly fueled by surging oil and gas prices resulting from Middle East turmoil, the European Central Bank (ECB) continues to maintain a cautious approach. ECB policymaker Martins Kazaks emphasized on Tuesday the need for the ECB to “sit tight” and keep interest rates steady amid considerable uncertainty linked to the conflict’s economic impact.
Despite this, money markets reflect a growing probability—approximately 40%—that the ECB will raise interest rates by the end of the year. This shift has been supported by hotter-than-expected inflation numbers released for February, suggesting that energy-related price pressures might push the ECB toward tightening monetary policy sooner rather than later.
Higher interest rates or expectations thereof typically strengthen the Euro by attracting capital inflows seeking favorable returns. However, the immediate effect of geopolitical instability has so far overshadowed this factor.
Understanding the Euro and Its Influencers
The Euro serves as the official currency for 20 European Union countries within the Eurozone and is the second most traded currency globally, representing 31% of all foreign exchange transactions. EUR/USD remains the most actively traded currency pair worldwide, accounting for roughly 30% of daily forex activity.
The ECB, headquartered in Frankfurt, Germany, is responsible for setting monetary policy and managing interest rates within the Eurozone. Its primary mandate is to maintain price stability by controlling inflation, often influencing currency valuation through rate adjustments.
Economic indicators such as inflation, GDP, manufacturing and services PMIs, employment figures, and trade balances play a significant role in shaping investor sentiment toward the Euro. Positive data can support the Euro by signaling a robust economy and encouraging ECB rate hikes, while weakness can weigh on the currency.
Market Sentiment and Outlook
The EUR/USD’s current dip below 1.1650 reflects immediate concerns over geopolitical risks and safe-haven demand for the US Dollar, overpowering the Euro’s underlying support from inflation-induced rate hike expectations. The ongoing conflict in the Middle East and its influence on energy prices remain critical factors to watch.
As Thursday progresses, attention will turn to economic releases and potential further statements from central banks to assess the balance of risks for the Euro and US Dollar.
About the Author
Lallalit Srijandorn is a Paris-based digital entrepreneur and financial market commentator with insights into global forex dynamics.
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This article is provided for informational purposes only and does not constitute trading advice.