Euro sticks to positive bias above 1.1400 vs USD; Mideast tensions cap gains
The EUR/USD pair attracts some buyers for the second straight day, though it lacks follow-through and remains confined within the previous day's range during the Asian session on Thursday. Spot prices currently trade around the 1.1420 area, up less than 0.10% for the day, and remain at the mercy of the US Dollar (USD) price dynamics.
The USD Index (DXY), which tracks the Greenback against a basket of currencies, remains on the defensive below the weekly top, touched on Wednesday, amid reduced expectations for Federal Reserve (Fed) rate hikes. Against the backdrop of last week's soft US Nonfarm Payrolls (NFP) report, the Minutes of the June 16-17 FOMC meeting revealed that policymakers noted high uncertainty about the outlook on interest rates.
However, Fed officials indicated that some policy firming would likely be warranted to return inflation to 2%. According to the CME Group's FedWatch Tool, traders are still pricing in around a 70% chance that the US central bank will raise borrowing costs in September. This, along with a fresh escalation of tensions between the US and Iran, acts as a tailwind for the safe-haven USD and acts as a headwind for the EUR/USD pair.
The US military unleashed a new wave of strikes against Iran in retaliation for Tehran’s attacks on commercial ships in the Strait of Hormuz. Iran retaliated by targeting approximately 85 US military installations and assets across Bahrain and Kuwait. Adding to this, US President Donald Trump said on Wednesday that the memorandum of understanding with Iran aimed at ending the conflict in the Middle East is now over.
Meanwhile, European Central Bank (ECB) rate hike bets have recently faced downward pressure in the wake of an unexpected fall in Eurozone inflation. This might hold back traders from placing aggressive bullish bets on the shared currency, which could further cap gains for the EUR/USD pair. Traders now look to the release of ECB Monetary Policy Meeting Accounts and the US Weekly Initial Jobless Claims for a fresh impetus.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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