The Euro to Dollar (EUR/USD) exchange rate proved resilient early this week amid elevated uncertainty and jumped to highs just above 1.17 on Wednesday following the announcement of a 2-week cease-fire between the US and Iran.

CIBC expects a net EUR/USD advance to 1.19 by the end of this year as the dollar loses traction amid lower US yields.

Inevitably there is still a high degree of uncertainty over the Middle East situation and whether there will be a durable easing of tensions and a resumption of shipping through the Strait of Hormuz.

The bank notes the potential for fresh dollar gains if the Iran situation deteriorates again, but also considers that the US currency is overvalued at current levels.

Importantly, CIBC considers that the economic impact already seen will reinforce its expectations that yields will move in favour of European currencies during the course of this year.

The bank expects that the ECB will be more willing to raise interest rates to combat any second-round inflation effects. In contrast, it does not expect the Federal Reserve will hike rates and, at this stage, is still backing two rate cuts by the end of this year.