The EUR/USD exchange rate slipped to around 1.1530 in the early Asian trading session on Tuesday, largely affected by ongoing uncertainties tied to the Middle East situation. Investors are now eagerly anticipating the US May Consumer Price Index (CPI) inflation report, set to be released later on Wednesday, which could provide some new direction. Additionally, all eyes will be on Thursday’s European Central Bank (ECB) interest rate decisions.
Israeli Prime Minister Benjamin Netanyahu remarked on Monday that the conflict with Iran and Hezbollah has “not concluded,” although he suggested both entities are currently at a weakened state, as reported by CNBC.
On the other hand, Iran declared an end to its military actions against Israel earlier that same day. However, warnings from Israel’s Central Command stated that continued attacks on Israel—including southern Lebanon—would result in “much harsher and more overwhelming actions” than previously seen. Any rise in tensions in the Middle East has the potential to strengthen safe-haven currencies like the US dollar, which might impact major currency pairs.
The ECB is scheduled for a monetary policy meeting on Thursday, with the market fully anticipating a 25 basis point hike following a surge in eurozone inflation to 3.2%.
“The ECB is expected to raise its primary interest rate by 25 basis points at the upcoming Governing Council meeting on June 11, as indicated by recent hawkish rhetoric,” noted Martin Wahlberg, a senior economist at Generali Investments.
Traders will likely focus on the ECB press conference for any insights into future interest rate trajectories for the rest of the year. If ECB officials sound optimistic, it could give a short-term boost to the euro.
