Euro edges higher as Iran diplomacy hopes weigh on the USD; French debt worries cap gains

The euro rose modestly against the dollar as hopes for progress in Iran diplomacy weakened demand for the greenback, which tends to attract safe-haven flows during geopolitical stress. The transmission runs through risk sentiment: easing expectations of Middle East escalation reduce the premium investors place on dollar liquidity and on oil-linked inflation risk, pressuring USD/EUR higher. Gains in the euro were capped, however, by renewed concern over French public debt, which widens the premium investors demand to hold French government bonds relative to German Bunds and weighs on the currency's broader appeal within the eurozone. EUR/USD and French-German bond spreads are the most sensitive gauges here, with the dollar index also exposed to any shift in Iran-related energy price expectations. Traders should watch the next eurozone flash inflation print and any French fiscal announcements or auction results for signs of whether spread pressure is building or fading.

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