Euro Holds Near Three-Month High, Dollar Remains Subdued

The euro held firm near a three-month high against the dollar on Tuesday, trading around 1.16723. The latest developments in the Middle East failed to trigger a strong market risk-off reaction, limiting safe-haven demand for the dollar, which remains mired in the weakness seen since last week. Earlier, the U.S. Treasury's decision to increase buybacks of longer-dated government securities was interpreted by the market as a signal of implicit easing, prompting a concentrated sell-off in the dollar from which it has yet to recover.

**Dollar Trapped by Policy Expectations and Technical Pressure**

The dollar's sustained weakness stems from a repricing of its policy outlook. Last week's U.S. Treasury decision to increase long-dated bond buybacks pushed down long-end yields, eroding the dollar's yield advantage. Meanwhile, shifting market expectations about the Federal Reserve's future policy path have left the dollar lacking upward momentum. On the technical front, after the dollar index broke below key support, bearish momentum has continued to unfold, and it has yet to mount an effective rebound, providing a favorable external environment for non-dollar currencies like the euro to hold at elevated levels.

**Euro Gains Temporary Support but Risks Remain**

The euro's latest strength, beyond being passively lifted by a weak dollar, also benefits from market optimism over fiscal expansion in some eurozone countries. However, the euro's own fundamentals are not without flaws. Latest data show that European economic sentiment remains fragile—for instance, Germany's consumer confidence index has previously declined. Markets broadly expect the European Central Bank to continue cutting rates this year, and the potential for a further widening of the U.S.-euro rate differential could, from a medium-to-long-term perspective, cap the euro's upside. Some analysts note that, from a technical standpoint, the euro faces strong resistance around the 1.0600 level against the dollar.

**Policy Divergence and Risk Sentiment in Focus Ahead**

Looking ahead, the euro-dollar's short-term direction will continue to closely track remarks from U.S. and European central bank officials and key economic data. Markets are closely watching the upcoming speech by Federal Reserve Chair Jerome Powell to gauge the outlook for the U.S. economy and inflation, and thereby assess the dollar's next move. Meanwhile, geopolitical developments in the Middle East and shifts in global risk sentiment will also stir the currency market. Overall, until a substantive reversal in the dollar's weak trend emerges, the euro is likely to continue oscillating within its recent high range.