USD Recovers as Middle East Tensions, ECB Rate Hike Talk Rattle EUR/USD

The US dollar recouped earlier losses during the European session on Friday as geopolitical tensions in the Middle East continued to dominate market sentiment. Reports that former President Trump is considering occupying Iran's Kharg Island to force the reopening of the Strait of Hormuz intensified risk-off flows, providing safe-haven support for the greenback. Meanwhile, the euro faced mixed signals as the ECB appointed Vujčić as its next vice president and hawkish policymaker rhetoric surfaced, with one official suggesting an April rate hike may be necessary if the inflation outlook deteriorates further. ECB policymaker Villeroy also weighed in, noting that potential rate hikes would be data-dependent. US equity markets remained under pressure heading into the close, reinforcing defensive positioning. The conflicting forces of dollar safe-haven demand against potential ECB tightening leave EUR/USD in a tug-of-war. Traders should monitor weekend developments in the Middle East for potential gap risk at Monday's open, while keeping an eye on evolving ECB rate expectations as a key directional catalyst for the pair.