Euro Holds Above One-Week Low Vs Softer USD; Upside Seems Limited As Iran Risks Persist

• EUR/USD gains some positive traction as the Israel-Lebanon truce underpins the USD.

• Expectations for an ECB rate hike this month further support the Euro and spot prices.

• Geopolitical risks and hawkish Fed bets limit USD losses, capping the upside for the pair.

The EUR/USD pair sticks to modest intraday gains through the first half of the European session, albeit it lacks follow-through buying and remains close to a one-week low touched earlier this Thursday. Spot prices currently trade above the 1.1600 mark, up just over 0.10% for the day amid a softer US Dollar (USD).

The Israel-Lebanon truce dents demand for the safe-haven Greenback and prompts some profit-taking following the overnight strong move up to its highest level since April 7. The shared currency, on the other hand, draws support from rising bets that the European Central Bank (ECB) will hike interest rates later this month. This turns out to be a key factor acting as a tailwind for the EUR/USD pair.

Meanwhile, the US and Iran remain at odds over key issues, including Tehran's nuclear program and the Strait of Hormuz. Furthermore, renewed hostilities in the Middle East keep geopolitical risks in play amid the lack of a breakthrough in US-Iran diplomatic negotiations. This, along with hawkish US Federal Reserve (Fed) expectations, limits USD losses and keeps a lid on the EUR/USD pair.

Persistent geopolitical uncertainties remain supportive of elevated oil prices and fuel inflation fears, reaffirming bets that the US central bank will raise borrowing costs by the end of this year. The outlook, in turn, might hold back traders from placing aggressive bearish bets around the USD, warranting some caution before positioning for any meaningful appreciating move for the EUR/USD pair.

Next on tap is the release of the US Weekly Initial Jobless Claims, which, along with speeches from influential FOMC members, could provide some impetus to the Greenback. The focus, however, will remain glued to the US Nonfarm Payrolls (NFP) report on Friday. In the meantime, the fundamental backdrop suggests that any subsequent move up is likely to be sold into and remain capped.