EUR/USD holds modest gains on Thursday, supported by some softness in the US Dollar (USD) as markets assess renewed hostilities in the Middle East.
At the time of writing, the pair trades around 1.1444, up 0.25% on the day
The latest escalation between the United States (US) and Iran has failed to provide a strong boost to the US Dollar. At the same time, downside in the Greenback has remained limited, reflecting market uncertainty over whether the interim peace agreement between Washington and Tehran will hold or collapse. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trades around 100.90 after touching an intraday low of 100.79.
Meanwhile, energy-driven inflation risks are back at the forefront as Oil prices rebound on growing security concerns around the Strait of Hormuz, a critical chokepoint that handles about 20% of global Oil flows. As a result, traders are increasingly expecting central banks to tighten monetary policy. Markets anticipate another European Central Bank (ECB) interest rate hike later this year, while the CME FedWatch Tool shows a 63% probability of a Federal Reserve (Fed) rate hike at the September meeting.