Euro Strengthens Near Three-Week High
The euro is trading above US$1.17, nearing its strongest level since April 20, as markets become increasingly hawkish about the European Central Bank's (ECB) policy outlook amid renewed inflation concerns. This movement reflects adjusted interest rate expectations, with investors assessing the ECB's tightening room is opening up.
In the interest rate market, money markets now expect ECB tightening of more than 50 basis points by the end of the year, equivalent to at least two rate hikes. The probability of the first hike in June is also assessed at over 75%, after several ECB officials recently signaled a rising chance of a rate hike due to persistent inflationary pressures.
The inflationary push is also being reinforced by rising energy prices. Brent prices have again risen above US$100 per barrel following clashes between the US and Iran around the Strait of Hormuz, fueling concerns about the stability of the fragile ceasefire in the region. Rising oil prices have the potential to maintain cost and inflationary pressures, which in turn strengthens the narrative of tighter ECB policy.
On the external risk side, US President Donald Trump warned the European Union that he would impose "much higher" tariffs on EU goods if the bloc did not remove tariffs on US products by July 4. The combination of ECB interest rate repricing, energy risks, and trade uncertainty are factors the market will be monitoring closely as they could impact capital flows, interest rate differentials, and the direction of EUR/USD volatility in the near term. (asd)
Source: Newsmaker.id
