Euro Holds Near $1.14 as ECB Meeting Looms

The euro remained steady just above $1.14 as focus shifts to the European Central Bank’s policy meeting on Thursday. After June’s rate hike, the first in three years, policymakers are expected to maintain rates and adopt a cautious stance. Yet, markets still anticipate about two additional rate increases by the end of the year, driven by rising crude prices, with the first potentially arriving in September. Meanwhile, investors are watching for a possible resumption of US-Iran peace talks following recent escalations. Ongoing Middle East tensions have raised concerns about oil supply disruptions, which could create inflationary pressures in Europe as a net energy importer, potentially pushing bond yields higher.

The euro traded around $1.14, below the one-month high reached on June 15, as investors weighed escalating tensions in the Middle East and a sharp rise in oil prices. Brent crude has touched its highest level in more than a month, following its biggest weekly gain since April, after the US and Iran exchanged a series of retaliatory strikes triggered by the deaths of US military personnel. Attention now turns to Thursday’s European Central Bank policy meeting. After raising rates in June for the first time in three years, policymakers are widely expected to leave rates unchanged and adopt a wait-and-see approach. However, markets continue to price in two further ECB rate hikes by early 2027, with the first potentially coming as soon as September.

The euro traded little changed around $1.145, hovering near its strongest level since June 19 and remaining on track for a weekly gain against the US dollar. Expectations of further European Central Bank tightening continued to support the currency, while investors also monitored escalating tensions in the Middle East following additional US strikes on Iranian targets. Markets fully price in an ECB rate hike in September, with another increase expected by spring 2027. However, recent comments from policymakers including Piero Cipollone and Martin Kocher signaled a cautious approach, making a July move unlikely. Meanwhile, the dollar weakened this week after softer-than-expected US inflation data, as producer prices unexpectedly fell in June and consumer prices posted their first monthly decline since 2020, reducing expectations for further Federal Reserve tightening this year.