Credit Agricole CIB Research argues that rate differential matters more for EUR/USD than risk sentiment at this juncture.

EUR/USD has dropped to multi-month lows of late, after weeks during which the pair has been 'pushed and pulled' by two seemingly conflicting drivers. On the one hand, we had the market hopes for an end to the conflict in the Middle East that culminated last week with the signing of the interim peace deal between Iran and the US. This market driver has helped investor risk sentiment recover, weighed on the safe-haven USD and given the EUR a boost. On the other hand, the steady build-up of hawkish market Fed expectations culminated last week as well, after the Fed delivered a hawkish surprise and gave the USD's relative rate appeal boost. The fact that EUR/USD trades at its current depressed levels could thus suggest that FX investors seem to put greater emphasis on the hawkish Fed than the abatement of geopolitical risks," CACIB notes.

"We also believe that the USD could remain more attractive vs the EUR even if risk sentiment were to improve further, given its appeal as a higher-yielding currency and given the continuing inflows into US technology stocks," CACIB adds.