EUR/USD Update
After a modest dip the day before, EUR/USD climbed to about 1.1640 during Asian trading on Wednesday. The pair is picking up steam, largely fueled by a rising wave of hawkish sentiment concerning the European Central Bank’s (ECB) monetary policy. On Tuesday, ECB policy member François Villeroy de Galhau emphasized that the central bank is prepared to “do what is necessary” to keep inflation within its target.
Recently, BNY referenced remarks from ECB Governing Council member Isabel Schnabel, a staunch advocate for a potential rate hike in June. Schnabel expressed concerns that the eurozone has managed to move past previous energy challenges, but secondary effects are starting to emerge as ongoing energy shocks from the Middle East contribute to lasting inflationary pressures. He underscored the importance of swift policy actions to uphold the ECB’s credibility amidst risks to economic growth.
In a different vein, ECB chief economist Philip Lane took a more laid-back stance during an interview with the Nikkei newspaper. When questioned about speculation around future interest rate hikes, Lane responded, “I don’t think the market needs any additional guidance from us,” though he acknowledged the ECB anticipates that indirect inflationary effects will extend beyond just energy prices.
Separately, EUR/USD has found support as the US dollar weakens, driven by reduced demand for safe-haven currencies. Despite heightened tensions in the Middle East, there’s a prevailing sentiment that a deal might still be possible between the US and Iran.
These geopolitical tensions intensified following Iran’s Foreign Ministry’s condemnation of recent US airstrikes in Hormozgan, labeling them a serious breach of the fragile ceasefire that has lasted seven weeks. This condemnation came after Iranian news outlets reported significant explosions in the area early Tuesday. In reply, Iran’s Supreme Leader Mojtaba Khamenei issued a stern warning, stating that Gulf states would no longer safeguard US military bases and suggested that the US could no longer find a secure refuge in the region.
