Euro Stalled; Oil Surge Lifts Dollar Again
The EUR/USD pair traded relatively flat during Tuesday's Asian session (August 18), hovering around the 1.1575–1.1580 range after a slight pullback from a two-month high. While the euro remains supported by expectations regarding ECB policy, a strengthening US dollar is beginning to limit the pair's upside potential.
Downward pressure on the dollar had previously intensified after softer US inflation data and weak consumer spending led markets to scale back expectations for a near-term Federal Reserve rate hike. These conditions had briefly pushed the Dollar Index to its lowest level since mid-June.
However, a surge in oil prices has reignited inflation concerns. US-Iran tensions and the lack of a full recovery in activity within the Strait of Hormuz are keeping energy risk premiums elevated. Should oil prices continue to rise, inflationary pressure could mount again, potentially prompting the Fed to keep the option of a rate hike on the table for the remainder of the year.
Geopolitical sentiment is also bolstering demand for the dollar as a safe-haven asset. President Donald Trump has affirmed that the US has no intention of extending the expired memorandum of understanding with Iran, while reiterating a hardline stance regarding the Strait of Hormuz and Oman.
Meanwhile, the euro continues to find support in growing expectations that the European Central Bank could implement another 25-basis-point rate hike at its September meeting. The divergence in policy expectations between the ECB and the Fed has allowed the EUR/USD pair to hold its ground near two-month highs.
Newsmaker Analysis: EUR/USD is currently caught in a tug-of-war between the ECB's still-hawkish outlook and a dollar regaining support from rising oil prices and geopolitical risks. Attention now shifts to Wednesday's FOMC minutes, which could determine whether the dollar extends its rebound or if the euro retests its previous highs. (asd)
Source: Newsmaker.id
