FX.co ★ Euro Slips From Three-Month Highs

The euro slipped below $1.165, pulling back from the near three-month highs reached last week, as investors weighed the pause in the recent decline in oil prices and reassessed the outlook for ECB interest rates. Market focus is also shifting to Federal Reserve Chair Kevin Warsh’s speech on Friday at the annual Jackson Hole symposium, which investors hope will offer further guidance on the Fed’s policy trajectory. At the same time, prospects for a deal to reopen the Strait of Hormuz remain unclear amid mixed signals from Iran. Qatar’s prime minister is scheduled to visit Tehran on Thursday in an effort to revive US-Iran diplomacy, though the two sides remain at odds over control of the strategic waterway. In money markets, traders are now pricing in about 40 basis points of additional ECB tightening by year-end, with a September rate increase almost fully anticipated. ECB policymakers have indicated they are prepared to raise rates at their September meeting to contain the economic fallout from the war in Iran, but they have so far been hesitant to signal any further tightening beyond that.