Euro Slightly Up on Middle East Hopes

The euro climbed toward $1.164, buoyed by cautious optimism over a potential Middle East resolution and as investors positioned for the European Central Bank’s meeting next week. Reports that Israel and Lebanon agreed to implement a ceasefire and end hostilities raised hopes for a broader deal to de-escalate the US-Israeli conflict with Iran. However, Tehran denied recent progress in talks with Washington over an interim peace deal, and fighting continued in Lebanon. Meanwhile, the Republican-controlled US House voted to halt military action against Iran. On monetary policy, markets are now pricing in a near-certain 25-basis-point ECB rate hike at the June 11 meeting, with two or possibly three increases expected this year. This follows data showing euro-area inflation rose to 3.2% in May, its highest in over two and a half years. Core inflation also accelerated to 2.5%, and services inflation climbed to 3.5%, signaling broadening price pressures beyond energy.

The euro held steady at $1.16 as investors weighed mixed signals from the Middle East conflict and prepared for the European Central Bank’s meeting next week. Iran said it targeted a US command ship in the Gulf of Oman, while the Republican-controlled House voted to end US military action against Iran, a move that represents a rare challenge to President Trump’s administration. Israel and Lebanon also reached a conditional ceasefire, though Prime Minister Netanyahu warned of potential further strikes. On the monetary policy front, markets are now pricing in a near-certain 25-basis-point ECB rate hike at the June 11 meeting, with two or possibly three increases expected this year. This follows data showing Euro-area inflation rose to 3.2% in May, its highest in over two and a half years, driven by surging energy costs tied to the war. Core inflation also accelerated to 2.5%, and services inflation climbed to 3.5%, indicating broadening price pressures beyond energy.

The euro held near $1.165 as investors processed mixed signals from Eurozone inflation data and the Middle East conflict. Euro-area inflation climbed to 3.2% in May, its highest in over two and a half years, driven by soaring energy costs tied to the war. However, core inflation accelerated more than expected to 2.5%, and services inflation rose to 3.5%, signaling broadening price pressures beyond energy. The data precedes next week’s European Central Bank meeting, with markets pricing in a 95% chance of a 25-basis-point rate hike, with two or possibly three increases expected this year. Meanwhile, ECB’s Isabel Schnabel cautioned on Monday that it’s premature to specify the number of rate hikes needed, while Lithuania’s Gediminas Šimkus suggested another hike after June is probable. Elsewhere, oil prices fell amid conflicting reports from US President Donald Trump and Israeli Prime Minister Benjamin Netanyahu on Lebanon talks, with Iran pausing US negotiations until clashes cease.