- EUR/USD depreciates as Middle East tensions drive safe-haven demand for the firm US Dollar.
- CENTCOM announced it successfully intercepted multiple Iranian missile and drone strikes targeting Kuwait and Bahrain.
- US Dollar remains firm as the Strait of Hormuz closure raises energy prices and inflation, keeping Fed rates higher for longer.
EUR/USD inches lower after moving little in the previous day, trading around 1.1630 during the Asian hours on Wednesday. The pair depreciates as the US Dollar (USD) remains firm, driven by stalled US-Iran peace negotiations and renewed tensions in the Middle East continued to underpin safe-haven demand.
US Central Command (CENTCOM) announced Tuesday that it successfully defeated a series of Iranian missile and drone strikes targeting Kuwait and Bahrain. In response to the regional aggression, US forces also executed self-defense strikes against military targets on Iran’s Qeshm Island, per ABC News.
The Strait of Hormuz closure threatens to drive energy prices higher and intensify global inflationary pressures, reinforcing expectations that the Federal Reserve (Fed) will maintain elevated interest rates for an extended period.
US ISM Manufacturing PMI climbed to 54 in May 2026, up from 52.7 in the prior two months and beating forecasts to mark the strongest factory expansion since May 2022. April JOLTS data showed Job Openings surging to a nearly two-year high of 7.6118 million alongside declining layoffs. With robust manufacturing and employment data complicating the inflation outlook, investors are now anxiously awaiting Friday’s Nonfarm Payrolls report for definitive clues on the future trajectory of monetary policy.
The Eurozone Harmonized Index of Consumer Prices (HICP) rose 3.2% year-on-year in May, ticking up from the previous 3% and matching market forecasts. This steady inflationary pressure keeps the spotlight firmly on the European Central Bank’s upcoming monetary policy decisions.
The Euro (EUR) could gain ground amid recent hawkish comments from the European Central Bank (ECB) members. ECB policymaker Olli Rehn noted that while long-term inflation expectations remain anchored, a rate move in June should be viewed as a precautionary “insurance hike.” Moreover, fellow ECB member Gediminas Simkus pointed out that inflation expectations currently mirror levels seen four years ago. He strongly emphasized the critical need for the central bank to react in a timely manner to prevent further price pressures from cementing.
