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EUR/USD holds near 1.1438 as Oil-driven inflation risks reshape rate bets

Oil is up about 12% for the week, while softer June inflation data has cooled near-term ECB and Fed hike expectations.

Reported · Written up by our desk · Major Pairs

EUR/USD was little changed on Friday, trading around 1.1438 and set for modest weekly gains, as traders reassessed how surging oil prices and Middle East tensions could affect inflation and central bank paths, FXStreet reported.

Oil prices have risen roughly 12% this week after escalating tensions disrupted energy supplies through the Strait of Hormuz, reinforcing expectations that major central banks may need to keep policy tighter for longer. Even so, June inflation data that came in below expectations in both the United States and the eurozone reduced expectations for a near-term rate hike.

The ECB is expected to keep interest rates unchanged at 2.25% at next week’s meeting, after a 25-basis-point rate increase in June, though traders still see upside inflation risks, with another hike later this year fully priced for September. In the US, markets have scaled back expectations for a near-term Fed move but still price about a 75% chance of a rate increase by December, according to the CME FedWatch Tool.

The US Dollar regained some ground after earlier losses, with the US Dollar Index steady around 100.76 after falling to a more than three-week low of 100.35 on Wednesday. Friday’s data showed the preliminary University of Michigan Consumer Sentiment Index rose to 54.4 in July from 49.5 in June, while one-year inflation expectations eased to 4.2% from 4.6%, and the five-year measure held at 3.3%, FXStreet added.

Latest closeEUR/USD 1.145 ▼0.2%|Dollar index 100.71 ▲0.2%

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