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The EUR/USD pair declined by 4% to 1.1415 in early March, driven by heightened geopolitical tensions related to Iran, which increased demand for the safe-haven US Dollar. DBS Group economist Philip Wee noted that markets currently price in two European Central Bank (ECB) interest rate hikes in June and September. Unless the ECB delays these hikes, the EUR/USD is likely to find support near 1.1390. The pair's performance is closely tied to both geopolitical risks and the ECB's monetary policy trajectory. This development is significant for forex traders as it underscores the interplay between geopolitical events and central bank decisions. A weaker euro benefits US dollar holders and could impact cross-currency trades. Traders should monitor ECB policy statements and any shifts in geopolitical tensions, as these factors could drive short-term volatility. The 1.1390 level serves as a critical technical support, and a break below this could signal further downside for the euro. For global markets, the ECB's rate hike timeline and the euro's weakness may influence capital flows into USD-denominated assets. Investors should also assess how prolonged geopolitical risks might affect risk appetite. The key focus for the coming months will be whether the ECB maintains its hawkish stance or pivots in response to economic data. EUR/USD traders should watch for policy divergence between the ECB and the Federal Reserve as a potential catalyst for directional moves.
