Euro holds near three-month highs as investors await US sanctions to Iran

The Euro (EUR) maintained near three-month highs against the US Dollar (USD) on Monday, trading above 1.1650 during the European morning session. Market participants are cautious as they await the announcement of additional sanctions against Iran, which could further strain US-Iran relations. US Treasury Secretary Scott Bessent recently stated that the US is preparing its "single greatest offensive ever marshaled against an adversary," aiming to sever all economic ties to the Islamic Republic.

The market is holding its breath, anticipating that these measures may target traditional Iranian allies like Iran and China. Iran has threatened to halt oil exports from Gulf countries and warned that countries cooperating with the US would face sanctions as an "act of war." Oil prices have dropped 1.5% below Friday's highs, with Brent Crude trading 1.5% below Friday’s highs.

Strategists at OCBC note that "USD debasement has re-emerged as a market theme" following the US Treasury's unexpected expansion of its long-end buyback program, indicating discomfort with the recent rise in long-dated yields. The US dollar is expected to weaken in the coming weeks as investors anticipate the impact of the Treasury's bond buyback plans on the Federal Reserve's monetary policy.

In a "risk-on" market, investors are optimistic, and they are more likely to buy risky assets like stocks, commodities (except gold), and cryptocurrencies. Conversely, in a "risk-off" market, bonds, gold, and safe-haven currencies such as the Japanese Yen, Swiss Franc, and US Dollar tend to rise. The Australian Dollar, Canadian Dollar, New Zealand Dollar, and minor currencies like the Ruble and South African Rand also tend to strengthen during "risk-on" periods.