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EUR/USD trades under pressure as ongoing Middle East tensions keep the US Dollar (USD) broadly supported, weighing on the Euro (EUR). Oil-driven inflation pressures prompt traders to price in tighter monetary policy. Traders price in ECB rate hikes while expecting the Fed to hold rates steady. At the time of writing, EUR/USD is trading near 1.1537, after hitting a low of 1.1509. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading near 100, below a daily high of 100.26. Investors remain caught between shifting escalation and de-escalation headlines around the US-Iran conflict, keeping volatility elevated across FX markets. Earlier optimism that the conflict could end soon faded after US President Donald Trump signaled that military operations will continue, offering no clear timeline for a resolution. Following Trump’s remarks, oil prices resumed their rise amid concerns over supply disruptions through the Strait of Hormuz, while the US Dollar recovered from a one-week low on safe-haven demand. Rising oil prices prompt traders to reassess monetary policy paths, with higher energy costs adding to inflation pressures and raising economic growth risks. The Eurozone is more vulnerable to energy shocks due to its reliance on imported energy, whereas the US, as a net exporter, is relatively better insulated. However, inflation in the Eurozone is closer to the ECB’s 2% target, while US inflation remains elevated, keeping the Fed cautious. ECB policymaker François Villeroy de Galhau stated that the next rate move is likely upwards, citing rising market inflation expectations. Attention turns to the US Nonfarm Payrolls (NFP) report on Friday, which could influence the Fed’s monetary policy outlook and EUR/USD direction.