The European Central Bank increased key interest rates by 25 basis points amid Middle East tensions driving energy costs higher.
The European Central Bank raised its deposit facility rate to 2.25% from 2.0% on Thursday, marking its first hike since 2023. The move lifted the EUR/USD pair to around 1.1575 in early Asian trading Friday, supported by improved risk sentiment and the ECB’s response to inflation pressures from the Middle East conflict.
The ECB also increased its main refinancing operations rate to 2.40% and the marginal lending facility rate to 2.65%. The decision was driven by concerns over rising energy costs linked to geopolitical tensions, with ECB President Christine Lagarde noting the hike’s robustness across multiple scenarios.
Risk sentiment improved after reports of progress in US-Iran negotiations, though uncertainty persists. Any escalation in tensions could strengthen the USD as a safe-haven asset, pressuring the EUR/USD pair.