EUR/USD edged up to about 1.1540 in early Asian trading on Friday. Trading volumes may be thin because of the Good Friday holiday.
The US Nonfarm Payrolls (NFP) report for March is due later on Friday. The data may affect expectations for US interest rates and the US Dollar.
Euro Supported By ECB Signals
European Central Bank comments supported the euro. Policymaker Francois Villeroy de Galhau said the next rate move is very likely to be an increase, but it is too early to say when hikes will begin.
Markets are pricing in nearly an 81.0% probability of a 25 basis point hike at the ECB’s 30 April meeting, based on the ECB Watch Tool. This expectation has contributed to near-term euro support.
The conflict in the Middle East is in its second month. This has the potential to raise crude oil prices and increase demand for the US Dollar as a safe-haven currency.
US President Donald Trump said a bridge in Tehran, Iran, was destroyed and warned that there was “much more to follow”. Iran’s foreign minister, Abbas Araghchi, said strikes on civilian infrastructure will not make Iran back down.
Shift From Tightening To Pause
We recall this period in 2025 when EUR/USD was trading near 1.1540, driven by hawkish European Central Bank (ECB) expectations. A year later, with those rate hikes now in the past, the pair is currently sitting closer to 1.0850. The market’s focus has clearly shifted away from the simple prospect of tightening central bank policy.
Last year, we saw markets pricing an 81% chance of an ECB rate hike for the April 2025 meeting, a very aggressive stance. In contrast, with the latest March 2026 Eurozone inflation figures coming in at a softer 2.1%, the conversation has moved towards a prolonged pause. This differs from the Federal Reserve, which appears content to hold rates higher for longer given resilient US economic data.
The significant safe-haven bid for the US Dollar, fueled by the Middle East conflict we were watching in early 2025, has largely subsided. With diplomatic channels having eased those specific tensions, one of the key pillars of dollar strength from that period is gone. Consequently, implied volatility in the currency markets is much lower, with the VIX index recently trading near 14, a stark contrast to the uncertainty of last year.
Given this environment, traders should consider strategies that benefit from lower volatility and a potential slow grind rather than a major breakout. Selling out-of-the-money puts on the dollar or calls on the euro could be a way to collect premium, reflecting the view that explosive upside for EUR/USD is unlikely. This is a significant shift from 2025 when traders were positioned for sharp moves based on central bank and geopolitical news.
