Euro Steady at $1.165, Markets Eye Inflation and ECB Policy Direction
The euro moved relatively flat around $1.165 in the final trading session of May, but remains on track for a monthly decline of around 0.8% against the US dollar. Market participants are weighing the latest inflation data from major European economies to gauge the direction of European Central Bank (ECB) policy, while also monitoring developments in US-Iran peace talks.
Inflation signals are trending upward. Flash data showed that French EU-harmonized inflation rose to 2.8% in May, the highest since February 2024, while Spain's rose to 3.6%, the highest since June 2024. Both figures remain above the ECB's 2% inflation target.
Meanwhile, French growth weakened after first-quarter 2026 GDP was revised down to a 0.1% contraction. The combination of persistently high inflation and signs of slowing activity keeps the market focused on a policy "trade-off" narrative, where the ECB needs to balance price stability with growth risks.
On the risk side, geopolitical uncertainty is once again a factor. Tensions escalated after reports of a drone incident in Romania attributed by local authorities to Russia, prompting France to summon the Russian ambassador and escalate diplomatic pressure.
Adding to the policy focus, the minutes of the latest ECB meeting showed that some policymakers would support a rate hike in April if proposed, reinforcing market expectations for a 25 basis point hike at the June 11 meeting. Markets will be monitoring the meeting's outcome, subsequent inflation releases, and the direction of geopolitical developments that could potentially influence risk sentiment and the movement of the EUR/USD. (asd)
Source: Newsmaker.id
