The EUR/USD remains steady at approximately 1.1640 during the early Asian session on Wednesday. Iran has issued a warning of potential retaliation following the US airstrikes on missile sites and mine-laying vessels. ECB’s Villeroy stated that the central bank will take the necessary measures to control inflation. The EUR/USD pair is currently trading in a stable manner around 1.1640 during the early Asian session on Wednesday. However, the potential upside for the major pair may be constrained due to escalating tensions in the Middle East, following Iran’s threats of retaliation in response to US strikes on launch sites and boats.
Iranian Supreme Leader Mojtaba Khamenei stated that Gulf powers will cease to act as a protective barrier for US bases, indicating that the US will no longer enjoy a secure presence in the region, according to the Guardian. Furthermore, Iran’s Revolutionary Guard Corps asserted its “legitimate and definite” right to respond to any violations of the ceasefire by the US. The tensions between Washington and Tehran have escalated following US President Donald Trump’s statement regarding the ongoing negotiations with Iran aimed at extending their ceasefire and reopening the vital waterway.
Uncertainty and indications of a prolonged conflict in the Middle East may strengthen a safe-haven currency like the Greenback, potentially creating challenges for the major pair. Conversely, hawkish remarks from the European Central Bank may provide support for the shared currency. ECB policymaker Francois Villeroy de Galhau stated on Tuesday that the central bank “will do what is necessary” to maintain inflation on target.
ECB board member Isabel Schnabel emphasised the necessity for the central bank to increase interest rates in June, regardless of the potential outcomes from ongoing peace negotiations with Iran. She noted that the conflict has persisted longer than anticipated, and elevated energy prices are impacting the wider economy. According to the ECB Watch Tool, financial markets are currently assigning nearly an 85% probability to a 25-basis-point increase from the ECB for the June meeting.