Euro dips before Eurozone inflation data

The euro slipped slightly in European trading on Tuesday against a basket of global currencies, extending its losses for a second consecutive session against the US dollar and moving further away from a two-week high. The decline comes amid profit-taking and corrective selling, as well as risk aversion driven by investor caution ahead of further developments in the ongoing peace negotiations between the United States and Iran.

Following recent media reports and the rebound in global oil prices, expectations for a European Central Bank rate hike at the June meeting have increased. Investors now await the release of the eurozone’s key inflation data for May later today to reassess those expectations.

The Price

• Euro exchange rate today: The euro fell by less than 0.1% against the US dollar to $1.1627, from an opening level of $1.1632, while the session high stood at $1.1635.

• The euro closed Monday down 0.2% against the dollar, its first loss in three sessions, due to corrective selling and profit-taking after reaching a two-week high of $1.1686 on Friday.

• Beyond profit-taking activity, the euro also came under pressure following limited military exchanges between the United States and Iran.

US dollar

The US Dollar Index rose about 0.1% on Tuesday, maintaining gains for a second consecutive session and reflecting continued strength in the US currency against a basket of global currencies.

The advance comes as investors remain cautious and avoid taking excessive risk while awaiting the outcome of negotiations between Washington and Tehran aimed at ending the conflict and reopening the Strait of Hormuz.

Top News

• Lebanon announced a partial ceasefire between Hezbollah and Israel.

• Trump said: “I had a very productive call with Hezbollah through high-level representatives, and they have agreed to a full ceasefire.”

• Trump said negotiations with Iran are continuing at a rapid pace.

• Trump stated that he is not concerned about oil prices, which surged after reports that Iran may fully close the Strait of Hormuz and suspend negotiations with the United States.

• Iran is seeking an end to hostilities on all fronts, along with the lifting of the naval blockade and easing of economic sanctions.

European interest rates

• Sources told Reuters that the European Central Bank is highly likely to raise interest rates in June due to inflation expectations moving toward an undesirable scenario.

• With global oil prices rising, money markets have increased the probability of a 25-basis-point ECB rate hike at the June meeting from 75% to 95%.

Eurozone inflation

To reassess expectations for European interest rates this year, investors are awaiting the release of the eurozone’s May inflation data later today, which will provide further insight into inflationary pressures facing policymakers at the European Central Bank.

At 09:00 GMT, the annual eurozone Consumer Price Index is expected to show a 3.2% increase in May, up from 3.0% in April. Core inflation is expected to rise by 2.4%, compared with 2.2% in the previous month.

Outlook for the euro

We expect that if inflation data comes in hotter than current market expectations, the probability of a European interest rate hike in June will increase further, which would support higher euro levels against a basket of global currencies.