EUR/USD retreats from intraday highs as Oil prices rebound on Hormuz tensions

• EUR/USD eases from intraday highs as renewed Strait of Hormuz concerns support the US Dollar and Oil prices.
• Traders monitor evolving US-Iran developments as diplomatic efforts to end the war continue.
• Fed and ECB officials maintain a cautious stance as energy-driven inflation risks remain elevated.

EUR/USD eases from intraday highs on Thursday as evolving geopolitical developments surrounding tensions in the Middle East help the US Dollar (USD) and Oil prices recover some losses after recent weakness. At the time of writing, the pair is trading around 1.1748 after touching an intraday high near 1.1778.

Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, recovered toward 98.00 after sliding to near pre-war levels earlier in the week.

Market sentiment turned cautious after reports that the US is looking to restart “Project Freedom” to help unblock the Strait of Hormuz, according to US officials cited by The Wall Street Journal. However, a US official later told Al Jazeera that reports about preparations to resume the operation were incorrect.

In a separate development, CNN reported that Tehran has laid out a new set of rules for vessels seeking to transit the Strait of Hormuz, according to a document seen by the news outlet.

The document, titled “Vessel Information Declaration,” was issued by Iran’s newly created Persian Gulf Strait Authority (PGSA) and must be completed by all transiting vessels to ensure safe passage through the waterway. It remains unclear whether transit fees will be imposed, though earlier reports suggested fees of about $2 million for passage.

The latest developments come after reports that the US and Iran are moving closer to an agreement aimed at ending the war, with Tehran reviewing the latest US-backed proposal and expected to respond through Pakistani mediators in the coming days.

Although Oil prices have eased from recent highs, persistent uncertainty surrounding the Strait of Hormuz since the war began has kept prices elevated, fueling inflation concerns and increasing pressure on central banks to raise interest rates.

Fed officials’ cautious tone has further reinforced this view. Boston Fed President Susan Collins said on Thursday that interest rates may need to remain on hold “for a longer period” while warning that “the odds of a worse inflation scenario have increased.”

Traders now await Friday’s Nonfarm Payrolls (NFP) report for fresh clues on the Federal Reserve’s policy path ahead.

On the Euro side, European Central Bank (ECB) policymaker Isabel Schnabel warned that policy “will need to tighten if the energy shock spreads,” adding that the ECB would take the “necessary steps to restore inflation to 2%.”