The EUR/USD currency pair experienced mild losses, trading around 1.1655 during the early Asian session on Thursday, as ongoing tensions in the Middle East supported the US Dollar's safe-haven appeal [1]. Uncertainty surrounds the two-week ceasefire between the United States and Iran, with Reuters reporting sporadic fighting continuing in Lebanon. Iranian officials have criticized these violations, stating it would be 'unreasonable' to proceed with talks for a permanent peace deal with the US, which has contributed to persistent geopolitical risk and bolstered the Greenback [1].
Market participants are closely watching the upcoming US Consumer Price Index (CPI) inflation report for March, scheduled for release on Friday. The headline CPI is expected to rise 3.3% year-over-year, up from 2.4% previously, largely driven by surging oil prices amid the Middle East conflict. Any signs of hotter US inflation could further strengthen the Dollar and create additional headwinds for EUR/USD in the near term [1].
On the European side, the hawkish tone from the European Central Bank (ECB) may help limit the Euro's losses. ECB policymakers, including Pierre Wunsch and Dimitar Radev, have indicated that an interest rate hike at the April meeting is a 'live possibility,' though most officials see a June move as more likely. Traders have increased their bets, with markets now fully pricing in two rate hikes and more than a 50% chance of a third by December, marking a significant shift from earlier expectations of a rate cut this year [1].
Overall, the interplay between Middle East tensions, US inflation prospects, and ECB policy signals is shaping the EUR/USD outlook, with the Dollar gaining on safe-haven flows and the Euro finding some support from potential ECB tightening.
CONCLUSION
EUR/USD has softened near 1.1650 as geopolitical tensions in the Middle East lift the US Dollar, while upcoming US inflation data and a hawkish ECB stance are key factors influencing the pair. Traders are now pricing in multiple ECB rate hikes, a reversal from earlier expectations. The market remains sensitive to developments in both US inflation and Middle East geopolitics.