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Euro nudges higher above 1.1400 as traders ramp up their bets on ECB hikes

  • EUR/USD trades with mild gains near 1.1430 in Friday’s early Asian session.
  • ECB saw inflation rising despite nearly three expected hikes, accounts showed.
  • US official said Washington remains committed to a resolution with Iran.

The EUR/USD pair posts modest gains around 1.1430 during the early Asian session on Friday, bolstered by a softer US Dollar (USD). The European Central Bank (ECB) is grappling with elevated core inflation, forcing traders to price in more aggressive tightening despite mixed guidance from ECB officials. 

Accounts of the meeting showed on Thursday that the ECB policymakers gathering last month were presented with projections showing inflation staying above target into next year despite nearly three ECB interest rate hikes. The ECB raised rates at the June policy meeting, and traders expect it to do so twice more over the next year to contain the fallout from the Iran war on energy prices.

Traders raise their bets on ECB rate hikes again in recent days on signs that an agreement between the US and Iran to end the war is in jeopardy. This, in turn, provide some support to the shared currency.

Markets will closely monitor the developments surrounding the US-Iran conflict. Any signs of rising tensions could boost a safe-haven currency and act as a headwind for the major pair. US official on Thursday signaled that it is still committed to the memorandum of understanding with Iran, even though US President Donald Trump’s declared earlier this week that the framework deal to end the Iran war was “over.” 

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Dollar Falls for Third Straight Session

The dollar index fell toward 100.5 on Friday, extending losses for a third straight session as reports that the US and Iran will continue peace negotiations despite a recent escalation in hostilities dampened safe-haven demand for the currency. Lower oil prices also helped ease inflation concerns and reduce expectations of aggressive policy tightening, although markets still largely anticipate at least one Federal Reserve interest rate hike this year. Meanwhile, New York Fed President John Williams said that, among the factors driving inflation in the US, he is most focused on demand fueled by artificial intelligence. Separately, Fed Chair Kevin Warsh unveiled the leadership of five task forces to review the US central bank’s approach to key areas of policymaking, signaling the potential for changes in how the Fed conducts monetary policy. The dollar weakened broadly on Friday, posting its largest declines against the Japanese yen and the New Zealand dollar.

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Offshore Yuan Hits Near 3-Week High

China’s offshore yuan strengthened to around 6.78 per dollar on Friday, extending gains from the previous session to its strongest level in nearly three weeks after the People’s Bank of China signaled greater tolerance for currency appreciation. The central bank set the yuan’s daily reference rate at 6.7989 per dollar, stronger than Thursday’s fixing of 6.8036 and below the closely watched 6.80 threshold for the first time since 2023. A fixing below 6.80 per dollar is widely viewed by investors as an indication that authorities are not seeking to restrain the yuan’s recent appreciation. Attention is now turning to a packed slate of Chinese economic releases due next week, including trade data, second-quarter GDP, industrial production, retail sales, and the unemployment rate. The figures are expected to provide fresh insight into the strength of the economy and could shape expectations for the yuan’s near-term direction.

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Yen Jumps on Intervention Fears

The Japanese yen strengthened past 161.5 per dollar on Friday, erasing all of its losses from earlier in the week as traders remained alert to the possibility of official intervention after the currency weakened to fresh 40-year lows. Market participants are now awaiting intervention data due later this month to determine whether Japanese authorities were behind the sharp but short-lived rallies seen in recent weeks. Investors also assessed data showing Japan’s producer prices climbed 7.1% in June, marking the fastest annual increase since March 2023 amid persistent cost pressures linked to the Middle East conflict and the yen’s sharp depreciation. Meanwhile, oil prices retreated after reports indicated that the US and Iran will continue peace negotiations despite a recent escalation in hostilities. That weighed on the dollar and Treasury yields while easing pressure on the yen by reducing import cost concerns for Japan, which depends heavily on Middle Eastern oil.

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Australian Dollar Set for a Muted Week

The Australian dollar rose to around $0.695 but was on track to finish the week largely unchanged as investors monitored developments surrounding the Strait of Hormuz following renewed tensions in the Middle East. The safe-haven US dollar strengthened, while oil prices climbed after the US and Iran carried out military strikes in the Gulf earlier this week. However, both countries are now set to resume peace talks despite the recent escalation. Meanwhile, the International Monetary Fund lowered its 2026 growth forecast for Australia to 1.9% from 2.0% and warned inflation would remain elevated at around 4% this year. The Reserve Bank of Australia will meet in August and is expected to keep its cash rate unchanged at 4.35%, though markets still price in a roughly 60% chance of one final rate hike later this year, depending on the movement of oil prices. Traders also await key employment and inflation data due later this month, which could offer fresh clues on the policy outlook.

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EUR/GBP Price Languishes below 0.8550 with bullish attempts subdued

  • EUR/GBP treads water around 0.8530, a few pips above one-year lows, at 0.8519.
  • German Trade Balance surplus beat expectations in May, yet with no impact on the Euro.
  • Rising geopolitical tensions and higher Oil prices are keeping Euro bulls subdued.

The Euro (EUR) keeps treading water right above one-year lows against the British Pound (GBP) on Thursday. The EUR/GBP is trading flat in the area of 0.8530 at the time of writing, weighed by rising tensions between the US and Iran and the rebound in oil prices.

In the Eurozone, German Trade Balance data beat expectations with a EUR 19.1 billion surplus in May, from the 14.5 billion surplus seen in April, as exports grew against expectations. The data, however, has failed to provide any significant support to the Euro.

Meanwhile, the US has launched a new round of attacks in Iran, which targeted US bases in Gulf countries in retaliation. US President Donald Trump said on Wednesday that the ceasefire was over, and Crude prices have bounced up nearly10% with Brent Oil hitting the $80 level on Wednesday, after bottoming near $70.00 last week.

Technical Analysis: EUR/GBP bears have lost momentum

Chart Analysis EUR/GBP

EUR/GBP shows a bearish near-term tone, although sellers seem to have lost momentum. The Relative Strength Index (14), now near 28, highlights a bullish divergence, while the Moving Average Convergence Divergence (MACD) indicator stabilizes around the zero line, hinting at consolidation rather than a decisive bullish reversal.

Bulls, however, must break above the previous yearly low, at 0.8533 (Jul 7 low), and the top of the descending wedge pattern from mid-June highs, now around 0.8555, to confirm a bullish correction.

On the downside, below the mentioned Wednesday’s low at 0.8519, the confluence of the wedge bottom and late June 2025 lows, just above 0.8500, is likely to test bulls. Further down, there is no clear support until the early June 2025 lows, in the area of 0.84100.8863.

Euro Price This week

The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the Japanese Yen.

USDEURGBPJPYCADAUDNZDCHF
USD0.03%-0.46%0.65%-0.20%-0.03%-0.32%0.38%
EUR-0.03%-0.51%0.61%-0.26%-0.03%-0.39%0.30%
GBP0.46%0.51%1.00%0.26%0.47%0.13%0.82%
JPY-0.65%-0.61%-1.00%-0.87%-0.55%-0.93%-0.28%
CAD0.20%0.26%-0.26%0.87%0.30%-0.07%0.56%
AUD0.03%0.03%-0.47%0.55%-0.30%-0.36%0.33%
NZD0.32%0.39%-0.13%0.93%0.07%0.36%0.69%
CHF-0.38%-0.30%-0.82%0.28%-0.56%-0.33%-0.69%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).

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AUD/JPY Price Weakens to near 112.50, but uptrend remains constructive

  • AUD/JPY weakens to near 112.62 in Thursday’s early European session.
  • The cross keeps a constructive bullish bias, but further consolidation cannot be ruled out with neutral RSI momentum.
  • The initial support level is located at 112.55; the immediate resistance level to watch is 113.55.

The AUD/JPY cross trades in negative territory around 112.62 during the early European trading hours on Thursday. The Japanese Yen (JPY) edges higher against the Australian Dollar (AUD) amid escalating tensions in the Middle East after US President Donald Trump said an interim agreement to end the war with Iran was “over.”

Traders are also on high alert for possible intervention from Japanese officials. “The yen’s current weakness is excessive and fails to reflect the strong fundamentals of the Japanese economy, a misalignment that could prompt major central banks to launch coordinated intervention,” said Michael Nizard, head of multi-asset and overlay at Edmond de Rothschild Asset Management.

Chart Analysis AUD/JPY

Technical Analysis:

In the daily chart, AUD/JPY holds above the 100-day moving average (MA) and the Bollinger Bands’ 20-day simple moving average (SMA), which together suggest a constructive bullish bias after the recent pullback. Price also remains comfortably above the lower Bollinger band, while the upper band marks the next upside objective as the pair grinds higher; the Relative Strength Index (14) near 50 keeps momentum neutral, hinting at consolidation rather than exhaustion for now.

On the downside, initial support is seen at the 100-day MA at 112.55, followed by the Bollinger midline around 112.42 and then the lower band at 111.15, where buyers would likely defend the broader uptrend. On the other hand, the first upside barrier emerges at the June 16 high of 113.55. The next hurdle is seen at the upper Bollinger band at 113.70, en route to the May 13 high of 114.74.