The euro traded near $1.164, hovering close to a six-week low, as optimism over a potential US-Iran peace agreement and diminished expectations for further ECB rate hikes weighed on the currency. Market participants closely followed developments in the Middle East, encouraged by the recent absence of negative rhetoric from either side and sustained hopes that an accord to ease tensions and reopen the Strait of Hormuz remains achievable despite the latest strikes.
In interest-rate markets, money market pricing now suggests the ECB’s deposit facility rate will rise to 2.6% by December, from the current 2%, but this is down from a 2.75% projection just a week ago. Investors are still assigning roughly an 80% probability to another rate increase at next month’s policy meeting.
At the same time, ECB Executive Board member Isabel Schnabel told Reuters that the central bank should proceed with a rate hike in June even if a peace deal is struck, underscoring the magnitude and persistence of the energy shock facing the euro area economy.
