The Euro to Dollar (EUR/USD) exchange rate strengthened to 5-week highs at 1.1740 last week before dipping back below the 1.17 level as Middle East developments dominated.

Brent crude dipped sharply after the US and Iran announced a cease-fire, but there was renewed upward pressure on prices on Monday as peace talks failed to secure a breakthrough.

Credit Agricole still sees downward risks for the Euro due to energy stresses and has an end-2026 EUR/USD forecast of 1.13.

Events surrounding the Iran conflict will remain a key short-term market influence. The bank still considers that the Euro will remain vulnerable in the short term amid risks of fresh escalation surrounding the Iran conflict. Crucially, the bank notes that the Euro-Zone economy remains vulnerable from an energy shock, especially if prices increase further.

From a longer-term perspective, Credit Agricole calculates that fair value for EUR/USD based on underlying fundamentals is currently around 1.11 which will tend to act as a barrier to Euro gains.

Even with an element of unease surrounding investor appetite for US assets, Credit Agricole still expects that the dollar will remain the dominant reserve currency.