Traders await ECB policy signals and Middle East developments as Fed tightening bets rise to 43 bps for year-end.
EUR/USD remains near a critical breakout point as markets brace for the European Central Bank’s decision and escalating US-Iran tensions. The US dollar regained strength amid prolonged Middle East conflict, disrupting key shipping routes and lifting oil prices, which reinforced hawkish Fed expectations. Year-end tightening bets now stand at 43 bps, up from 32 bps last week following softer US inflation data.
The ECB is widely expected to hold rates steady but may signal future moves during President Lagarde’s press conference. Without updated macroeconomic projections, focus shifts to hints about a potential September hike. Meanwhile, Fed rate hike odds for July have climbed to 33%, reflecting heightened geopolitical risks and shifting monetary policy outlooks.
Risk sentiment remains fragile as the US-Iran standoff shows no signs of de-escalation, supporting the dollar’s safe-haven appeal. Any signs of easing tensions could trigger a dovish repricing, pressuring the greenback.