USD Pullback Extends as Geopolitical Risks and Weak ZEW Data Weigh on Markets

The US dollar continued its pullback during Tuesday's European session, with broad FX markets remaining rangebound amid a complex mix of geopolitical tensions and disappointing economic data. Germany's March ZEW economic sentiment index plunged to -0.5, dramatically missing the 39.0 consensus, signaling a sharp deterioration in investor confidence in Europe's largest economy. Geopolitical risks intensified as Iran's Supreme Leader declared it 'not the right time for peace,' while disruptions in the Strait of Hormuz kept oil prices elevated, with the IMO chief warning that military escorts are not a sustainable solution. Commodity positioning hit the most bullish levels since April 2022, while equity sentiment turned bearish, creating a risk-off backdrop. Italy's final February CPI came in at +1.5% y/y, slightly below the +1.6% preliminary reading, suggesting easing inflation pressures in the eurozone periphery. Gold remained confined in a tight range as safe-haven demand was offset by rangebound trading conditions. Traders should monitor further developments in Middle East tensions and upcoming US data for directional cues on the dollar.