NEW YORK: The euro edged lower on Thursday after the European Central Bank delivered a widely expected interest rate hike, while the dollar hovered near a two-month high as President Donald Trump pledged further US attacks on Iran.
The ECB raised interest rates for the first time in nearly three years, aiming to curb inflation before a surge in energy costs—triggered by the Iran war—spreads more broadly across the euro zone economy.
Markets largely brushed off both the ECB’s move and renewed tensions in the Gulf, which did not deliver a “meaningful surprise”, said Joel Kruger, markets strategist at LMAX Group.
The euro was down slightly by 0.15 percent against the dollar at USD1.1518.
Trump said the US would hit Iran “very hard tonight” and wanted eventually to take Iran’s oil infrastructure hub Kharg Island, after tit-for-tat strikes that have undermined a shaky ceasefire. The dollar tends to strengthen during periods of heightened geopolitical uncertainty, as investors seek safe-haven US assets, while it typically weakens when expectations of peace rise.
The greenback was slightly firmer against the Swiss franc at 0.80, trading near its highest level since early April.
The dollar index was up 0.15 percent to 100.20, after hitting its highest since April 6. Data showed on Thursday that US producer prices increased more than expected in May, leading to the largest annual gain in 3-1/2 years as the Middle East conflict drove up the cost of energy products.
The Federal Reserve is expected to hold rates steady next week at Kevin Warsh’s first meeting as Fed chair, with a strong majority of economists in a Reuters poll predicting that the US central bank would keep rates unchanged for the rest of 2026.
Traders, however, have fully priced in a 25-basis-point hike by December, a sharp turn from expectations of two rate cuts this year before the Iran war erupted at the end of February.
The Bank of Japan also meets next week and is expected to hike rates, although Governor Kazuo Ueda has been hospitalised for medical treatment and will miss the June 15 to 16 policy meeting.
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