Euro Rises as Markets Anticipate ECB Tightening

The euro climbed further above $1.16 as investors prepared for a likely European Central Bank interest rate hike next week, while maintaining cautious optimism about a potential Middle East resolution. Markets now price in a near-certain 25-basis-point ECB rate increase at the June 11 meeting, with two or possibly three hikes expected this year. This follows data showing euro-area inflation hit 3.2% in May, its highest in over two and a half years, with core and services inflation accelerating, signaling broadening price pressures beyond energy. However, uncertainty remains as policymakers balance high inflation with sluggish economic growth. ECB hawk Isabel Schnabel cautioned on Monday that it is premature to specify the number of rate hikes needed. Meanwhile, US-Iran negotiations continued, and military clashes between Lebanon and Israel persisted despite a pending US-brokered ceasefire.

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.