Euro: ECB path tied to Middle East risks – MUFG

MUFG’s Lee Hardman reports that renewed optimism over a US-Iran deal has lifted the Euro against the Dollar, with EUR/USD moving back toward 1.1600. The ECB has delivered a first hike in response to the energy shock but left options open for further moves, while MUFG still expects only one more hike and sees EUR/USD contained within a broad range.

Euro supported by deal hopes

"Renewed US-Iran deal optimism has helped the euro to strengthen modestly against the US dollar, and lifted EUR/USD back up closer to the 1.1600-level."

"The ECB raised rates for the first time in response to the energy price shock but refrained from committing to back-to-back hikes in June and July."

"But if the situation improves in the mean meantime, the ECB can still hold rates steady that month."

"The probability of the ECB hiking again as soon as next month has fallen back below 50:50 encouraged as well by renewed optimism over a US-Iran deal."

"A deal to quickly reopen the Strait of Hormuz would help to reduce downside risk for the euro and help keep EUR/USD in the current 1.1400-1.1800 trading range that has been in place over the past year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)