EUR/USD Exchange Rate Stuck in Neutral Amid Middle East Uncertainty

According to Bank of America's latest analysis, despite the euro-dollar exchange rate holding its post-Fed gains, there is still limited scope for a stronger near-term rally. The EUR/USD pair has recovered from June's low of around 1.1325 but remains well below January's peak of 1.2075.

The bank's FX strategists argue that while US data have surprised on the downside and September Fed tightening expectations have fallen sharply, EUR/USD has still struggled to rally further. The main reasons cited for this include Middle East uncertainty and elevated European gas prices capping EUR appreciation.

BofA also notes that positioning has changed, with reduced Euro shorts meaning there is now less fuel for a squeeze higher. The bank sees EUR/USD around 1.15 in three months, 1.17 in six months, and 1.20 in twelve months.