The euro (EUR) held steady against the British pound (GBP) on Thursday. EUR/GBP bulls have had a tough time establishing stability above 0.8660 after a 0.4% increase over the last two days. However, any pullbacks are currently limited above 0.8655.
Interest in the euro waned on Thursday amid escalating tensions between the United States and Iran, which dampened market sentiment and sent oil prices rising.
US forces initiated another strike on Iranian military targets in Bandar Abbas province, which, according to US Central Command (Centcom), poses risks to the Strait of Hormuz. The Iranian Islamic Revolutionary Guards Corps (IRGC) has admitted to targeting US military installations in the Gulf, while Kuwaiti officials reported intercepting drone and missile threats.
Monetary Policy Divergence: ECB vs. BoE
Despite the turmoil, the euro has remained relatively stable, bolstered by differing monetary policies from the European Central Bank (ECB) and the Bank of England (BoE). Futures markets indicate a 91% chance that the ECB will raise interest rates in their meeting on June 11, according to the ECB Watch tool. In contrast, there’s no expectation for the BoE to tighten its monetary policy anytime soon.
Philip Lane, the chief economist of the ECB, cautioned on Thursday that the inflationary consequences of the US-Iran conflict will persist beyond the immediate crisis, underscoring the need to counter the expectation that high inflation will be a long-term issue.
ECB President Christine Lagarde is set to attend a central bank meeting later in the day, and her insights on monetary policy are anticipated with great interest.
