Rising WTI prices to $88 per barrel lift expectations for tighter Fed policy, weighing on the euro amid Middle East tensions.
The EUR/USD pair trades flat near 1.1400, up just 0.08%, as escalating Middle East conflicts and surging oil prices limit the dollar’s downside. WTI crude jumped nearly 8% to $88 per barrel after attacks on Saudi oil tankers and Red Sea vessels, stoking inflation fears and Fed hawkishness.
Money markets now price a 37% chance of a Fed rate hike at the July 29 meeting, up from 23% a day earlier. The ECB is expected to hold its deposit rate at 2.25% in Thursday’s decision, with markets awaiting comments from President Christine Lagarde.
Geopolitical risks, including US-Iran tensions and Houthi attacks, continue to support the dollar as a safe-haven asset, offsetting broader USD weakness.