EUR/USD Softens To Near 1.1650 As Middle East Tensions Lift US Dollar

The EUR/USD pair trades with mild losses around 1.1655 during the early Asian session on Thursday. The Euro (EUR) softens against the US Dollar (USD) amid uncertainty surrounding the two-week ceasefire between the United States (US) and Iran. 

Reuters reported on Thursday that sporadic fighting continued in the Middle East, including in Lebanon. Iran officials cast that as violating the terms of the less than day-old ceasefire, suggesting that it would be "unreasonable" to proceed with talks to forge a permanent peace ‌deal with the United States (US). Persistent tensions in the Middle East could provide some support to a safe-haven currency such as the Greenback.

The US Consumer Price Index (CPI) inflation report for March will be in the spotlight later on Friday. The headline CPI is expected to show a rise of 3.3% YoY in March, versus 2.4% prior, driven by the surge in oil prices due to the Middle East war. Any signs of hotter inflation in the US could lift the Greenback and create a headwind for the major pair in the near term. 

Across the pond, the hawkish tone of the European Central Bank (ECB) could help limit the shared currency’s losses. ECB policymakers, including Pierre Wunsch and Dimitar Radev, said that an interest rate hike at the April meeting is a live possibility, though many officials view a June move as more likely.

Traders have ramped up bets, with markets now fully priced in two rate hikes and more than a 50% chance of a third move by December, according to Reuters. That's a stark turnaround from before the war, when the risk was a cut this year.