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18/05/26
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EUR/USD Weakens as Fed Hike Bets and Safe-Haven Demand Lift Dollar
EUR/USD continued to weaken for a sixth straight session on Monday, trading near 1.1620 in Asian hours as the US Dollar advanced. The move reflected a firmer Federal Reserve policy tone, with officials signaling that inflation remains the central concern and that additional rate increases may still be required if price pressures do not ease.
Market expectations have shifted notably in recent days. The probability of a December rate hike has climbed to nearly 48%, up sharply from 14% a week earlier, according to the CME FedWatch tool. That repricing has lent broad support to the dollar and kept pressure on the euro.
The greenback has also benefited from a stronger safe-haven bid amid persistent geopolitical tensions. The US and Iran have yet to reach an agreement to end weeks of conflict and reopen the Strait of Hormuz, a vital passage for global energy shipments. Rising oil prices have added to concerns about inflation and economic stress, particularly for countries dependent on imported energy.
Further unease has come from warnings linked to Taiwan, with tensions between the US and China remaining elevated. Those developments have encouraged investors to favor lower-risk assets, adding another layer of support to the dollar.
Even so, losses in EUR/USD may be limited by expectations that the European Central Bank will maintain a restrictive stance. ECB officials have recently signaled that policy may need to stay tight, or even tighten further, to prevent inflation from becoming entrenched.
A Reuters survey showed that 85% of economists now expect the ECB to raise its deposit rate by 25 basis points to 2.25% in June. That marks a notable increase from the share of economists expecting such a move before the April meeting, suggesting that the euro could retain some support if the ECB delivers on those expectations.
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