EUR/USD falls to near 1.1540 as US Dollar remains firm amid Middle East conflicts

• EUR/USD drops to near 1.1540 as Middle East conflicts improve safe-haven demand.
• The Fed is unlikely to cut interest rates this year.
• A negative energy supply shock amid Iran conflicts has weighed on the Euro.

The EUR/USD pair is down 0.2% to near 1.1545 during the late Asian trading session on Monday. The major currency pair is under pressure as the US Dollar (USD) gains amid an increase in demand for safe-haven assets due to escalating conflicts in the Middle East.

As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.17% higher to near 99.67.

Middle East conflicts have escalated as Iran vows retaliation against United States (US) President Donald Trump’s 48-hour ultimatum, in which he warned the obliteration of Iran’s power plants if it doesn’t open the Strait of Hormuz within 48 hours.

In addition to an increase in the US Dollar’s safe-haven demand, speculation that the Federal Reserve (Fed) will not cut interest rates this year is also providing support to the US Dollar. The expectations of the Fed holding interest rates at their current levels for longer are backed by accelerating inflation expectations amid higher energy prices.

Meanwhile, the Euro (EUR) is facing the heat of rising energy prices. “The market's going with the idea that those countries and economies that enjoy a positive supply shock from energy are likely to perform better than those that are suffering from a negative supply shock, such as the Euro and the Japanese Yen (JPY), an analyst at National Australia Bank (NAB) said in a podcast, Reuters reports.

On the monetary policy front, the European Central Bank (ECB) left interest rates unchanged last week and warned that an “increase in energy prices will drive inflation above 2% in the near term".