EUR/USD has softened to approximately 1.1620 during the early Asian session on Thursday. The US executed additional strikes in Iran targeting a military installation. Leading officials at the European Central Bank are establishing the foundation for a potential interest rate increase in June. The EUR/USD pair is currently positioned in negative territory, trading around 1.1620 during the early Asian session on Thursday. Escalating tensions between the United States and Iran continue to exert pressure on riskier assets, including the Euro, in comparison to the US Dollar.
The US April Personal Consumption Expenditures Price Index inflation report is set to take center stage later in the day. On Wednesday, it is reported that the US military executed new strikes in Iran, focusing on a military site that was deemed a threat to US forces and commercial traffic in the Strait of Hormuz. The source indicated that the US military has intercepted and shot down several Iranian drones that presented a comparable threat. It has reported that three explosions were detected east of Bandar Abbas, prompting the activation of air defences for a duration of several minutes. Signs of escalating tensions in the Middle East and stagnation in the US-Iran peace negotiations may bolster demand for a safe-haven currency like the Greenback, potentially creating challenges for the major pair.
Conversely, hawkish remarks from European Central Bank officials could potentially mitigate the declines of the shared currency. Francois Villeroy de Galhau stated on Tuesday that the central bank “will do what is necessary” to maintain inflation within the target range. Meanwhile, ECB board member Isabel Schnabel indicated that the central bank ought to consider increasing interest rates in June, regardless of the potential outcomes of ongoing peace talks with Iran. She emphasised that the conflict has persisted longer than anticipated and that elevated energy prices are impacting the wider economy.
Financial markets have incorporated expectations for two increases in the ECB’s 2% deposit rate and assess a nearly 50% probability of a third adjustment within the coming year. Economists are adopting a more cautious stance, anticipating only two rate increases, with a subsequent cut projected for mid-2027, according to a poll.