EUR/USD Weakens as Iran Risks Lift Dollar
EUR/USD weakened to around 1.1635 in early Asian trading on Tuesday (May 26), as the US dollar drew support from safe-haven sentiment amid uncertainty over the direction of the US-Iran peace deal and the reopening of the Strait of Hormuz.
Pressure on the euro emerged following reports that US forces conducted a "defensive" attack in southern Iran on Monday. According to media reports, the targets included missile launch sites and Iranian vessels allegedly attempting to lay mines, while the US military stated it would protect its troops while maintaining restraint during the ceasefire.
Earlier, US President Donald Trump said negotiations toward a deal to end the conflict and reopen Hormuz were "going well." However, a series of conflicting headlines have made the market more focused on the risk of escalation, which generally boosts demand for the dollar and weighs on the EUR/USD pair.
From the European side, the ECB's more hawkish policy tone has been a factor restraining the euro's weakness. ECB Governing Council member Martin Kocher said the central bank is increasingly leaning toward an interest rate hike next month as the Iran conflict adds to inflationary pressures.
The market is now pricing in around an 85% chance of a 25 bps hike at the June ECB meeting (based on the ECB Watch Tool). If these tightening expectations strengthen, the interest rate spread could help limit the euro's decline, even as safe-haven flows continue to support the dollar.
Market participants are also awaiting comments from ECB official Olaf Sleijpen and Minneapolis Fed President Neel Kashkari on Tuesday, which could potentially influence the market's assessment of the interest rate path and the direction of EUR/USD, especially amid volatile geopolitical headlines. (asd)
Source: Newsmaker.id
