EUR/USD has softened to approximately 1.1635 during the early Asian session on Tuesday. On Monday, US forces executed defensive strikes in southern Iran. The likelihood of an ECB rate hike increases as the conflict in Iran drives inflation higher. The EUR/USD pair is currently positioned in negative territory, trading around 1.1635 during the early Asian session on Tuesday. The Euro weakens against the US Dollar as uncertainty surrounding the US-Iran peace agreement boosts a safe-haven currency.
The European Central Bank policymaker Olaf Sleijpen and Federal Reserve Bank of Minneapolis President Neel Kashkari are scheduled to address the public later on Tuesday. As reported that US forces executed “self-defence strikes” in southern Iran on Monday. According to a spokesperson from US Central Command, American strikes were directed at missile launch sites and Iranian vessels that were attempting to deploy mines, as well as Iranian boats engaged in placing mines. The US military has announced its commitment to safeguarding its forces while maintaining a stance of restraint throughout the ceasefire period.
Earlier Monday, US President Donald Trump stated that negotiations aimed at reaching a deal with Iran to resolve their conflict and reopen the Strait of Hormuz were “proceeding nicely,” according to reports. Market participants will pay close attention to the unfolding events related to the US-Iran peace agreement. Any indication of heightened tensions in the Middle East may strengthen a safe-haven currency like the Greenback, potentially creating challenges for the major pair.
Conversely, the ECB’s hawkish stance could serve to mitigate the losses of the shared currency. ECB Governing Council member Martin Kocher indicated on Sunday that the central bank is progressively favouring an interest rate increase next month, as the conflict in Iran contributes to rising inflationary pressures. The financial markets currently reflect an approximate 85% likelihood of a 25-basis-point increase from the ECB during the June meeting, as indicated by the ECB Watch Tool.