The euro held steady around $1.16 as investors awaited further details on the US-Iran peace agreement and clarity on the Federal Reserve’s monetary policy outlook. Risk sentiment improved on the back of a sharp decline in oil prices, though markets remained cautious ahead of Friday’s planned signing of the US-Iran deal. The accord builds on a preliminary agreement to end the conflict and reopen the Strait of Hormuz after nearly four months of war.
In rates markets, investors have scaled back expectations for European Central Bank tightening, with money markets now pricing in less than 30 basis points of additional hikes this year—effectively just one more increase. Nonetheless, ECB policymaker Gediminas Šimkus reiterated on Wednesday that upside inflation risks still warrant further tightening and said he expects at least one more rate hike to keep inflation expectations anchored.
Later today, attention will turn to the Fed’s policy decision, with markets focused on the updated FOMC projections and remarks from new Chair Kevin Warsh regarding the future path of interest rates.
