Euro remains subdued following German ZEW Survey data

• EUR/USD holds losses as the Euro remains weaker despite improved ZEW Survey data.
• US Dollar holds steady on safe-haven demand as escalating tensions between the US and Iran fueled market risk aversion.
• CME FedWatch data shows the probability of a Fed rate hike at the next meeting fell to 36.6%.

EUR/CAD depreciates after three days of gains, trading around 1.1570 during the European hours on Tuesday. The pair loses ground as the Euro (EUR) remains subdued following the release of German ZEW Survey data.

Germany's ZEW Survey – Current Situation came in at -61.1 in August, against the expected -68.8 and July’s -77.6 reading. Economic Sentiment arrived at 34.2 in August, beating the estimates of 30.0 and the July reading of 26.3. Meanwhile, ZEW Survey - Economic Sentiment in the Eurozone also improved to 31.4, coming in higher than estimates of 25.4 and the prior release of 23.4.

The EUR/USD pair depreciates as the US Dollar (USD) holds ground on safe-haven flows amid escalating geopolitical tensions between the US and Iran. US President Donald Trump stated he has no interest in renewing the expiring agreement with Iran, pointing to the active naval blockade of Iranian ports as leverage and reiterating his intention to declare the vital waterway as total American territory.

However, the Greenback may struggle as hawkish expectations surrounding the Federal Reserve fade. A recent, unexpected decline in July US Nonfarm Payrolls alongside modest consumer price inflation figures has weakened the case for imminent monetary tightening. Consequently, CME FedWatch Tool data shows the probability of a Fed rate hike at the next meeting has fallen to 36.6%, down from 48.4% a week ago.

Dollar steadies as US curve steepening accelerates

Analysts at MUFG/BTMU note that the US Dollar has "rebounded modestly today with the focus very much on the deterioration in bond market sentiment." They highlight that "UST bond yields have moved further sharply higher and the 30-year yield is now 25bps higher since the FOMC meeting on 29th July," with the 30-year "at 5.32% this morning," marking "the highest since 2007." MUFG/BTMU add that "curve steepening is showing clear momentum in the US and elsewhere," underscoring the shift in global duration dynamics that is underpinning the Dollar’s latest move.