EUR/USD climbs above 1.1650 as Iran-US peace deal pressures dollar

The euro extended gains above 1.1650 on Monday as a diplomatic breakthrough between the US and Iran reduced geopolitical risk premiums, sending the dollar index lower and lifting risk-sensitive currencies.

"The market is pricing out tail-risk scenarios that had supported the dollar since early 2025," said Elena Fischer, geopolitical risk strategist at Edgen. "A formal peace framework removes one of the largest uncertainty factors for energy markets and Middle East stability."

EUR/USD traded at 1.1662 in early European hours, approaching the 1.1650-1.1690 resistance band that has capped gains since late May. The dollar index slipped toward 99.75, extending a decline that began after initial reports of progress in US-Iran talks emerged last week. The Swiss franc also edged higher, reflecting a broader recalibration of safe-haven positioning rather than a uniform dollar selloff.

A formalized Iran-US agreement could further erode the dollar's risk premium, potentially pushing EUR/USD through the 1.1690 resistance level for the first time since early 2024. If the pair breaks above that threshold, the next target sits near 1.1750, a level last tested before the escalation of Middle East tensions.

The rebound in EUR/USD reflects a broader market reassessment of geopolitical risk that had been priced into the dollar since negotiations intensified. The greenback had strengthened during the early stages of US-Iran tensions as investors sought safe-haven assets, but the recent diplomatic shift has reversed those flows. Currency markets are now pricing a lower probability of supply disruptions in the Middle East, which had previously added a 3% to 5% risk premium to the dollar against major peers, according to strategist estimates.

The 1.1650-1.1690 zone represents a critical technical hurdle. The lower boundary at 1.1650 has acted as resistance since mid-May, while the upper end near 1.1690 marks the 200-day moving average. A sustained break above this band would signal a shift in the medium-term trend for EUR/USD, which has traded in a 1.1300-1.1700 range for most of 2026. The last time the pair traded above 1.1700 was in January 2024, before the Federal Reserve's rate-cutting cycle began and before Middle East tensions escalated.

The impact extends beyond EUR/USD. A reduction in geopolitical risk typically benefits emerging-market currencies and commodities while reducing demand for traditional safe havens. The Swiss franc's gain alongside the euro rather than against it suggests investors are rotating out of defensive positions broadly rather than seeking alternative havens. Oil prices, which had incorporated a risk premium from potential Strait of Hormuz disruptions, are likely to face downward pressure as the probability of supply disruptions recedes.

The next catalyst for EUR/USD will be the formal signing of any agreement and the subsequent removal of sanctions. If the deal is finalized in the coming weeks, the dollar could weaken further as markets adjust to a lower geopolitical risk environment. Conversely, any breakdown in talks would likely reverse the recent gains, with EUR/USD potentially testing support near 1.1500.

This article is for informational purposes only and does not constitute investment advice.