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03/06/26
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EUR/USD Slips as Geopolitical Risks and Fed Outlook Support Dollar
EUR/USD edged slightly lower in Asian trading on Wednesday, holding near 1.1630 after a largely subdued session the previous day. The pair remained under pressure as the US Dollar stayed broadly supported by renewed geopolitical risk and persistent safe-haven demand.
Tensions in the Middle East continue to shape market sentiment. US Central Command said it intercepted a wave of Iranian missile and drone attacks targeting Kuwait and Bahrain, while US forces carried out retaliatory strikes against military positions on Iran’s Qeshm Island. The risk of further disruption, including any threat to the Strait of Hormuz, has kept traders focused on the potential for higher energy prices and a broader inflationary spillover.
Those developments have reinforced expectations that the Federal Reserve may keep interest rates elevated for longer. The latest US data have also strengthened that view. The ISM Manufacturing PMI rose to 54 in May 2026, up from 52.7 in the prior two months and above expectations, marking the strongest factory expansion since May 2022. Meanwhile, April JOLTS figures showed job openings climbing to a near two-year high of 7.6118 million, alongside fewer layoffs. Investors now look to Friday’s Nonfarm Payrolls report for a clearer read on labor-market momentum and the policy outlook.
In Europe, inflation remains sticky enough to keep the European Central Bank in focus. The Eurozone Harmonized Index of Consumer Prices increased 3.2% year on year in May, up from 3.0% previously and in line with forecasts. That reading suggests price pressures have not eased decisively, leaving room for further debate over the ECB’s next steps.
Recent comments from ECB officials have lent some support to the Euro. Policymakers have indicated that inflation expectations remain relatively contained, but they also see the need to respond before price pressures become more entrenched. The combination of firm inflation, cautious central-bank messaging, and ongoing geopolitical uncertainty leaves EUR/USD vulnerable to further short-term swings.
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