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The euro appears to have found support below the 1.1600 level and is posting moderate gains amid increasing speculation about a potential agreement between the United States and Iran, as well as hawkish signals from the Federal Reserve reflected in the outcome of the April monetary policy meeting.
Market sentiment improved following reports that the United States is close to reaching an agreement with Iran. US President Donald Trump stated that negotiations are in the final stage but warned Iran that failure to reach a deal could lead to military action against the Islamic Republic.
Oil prices dropped sharply on this news, falling by more than 5%, although the decline paused today.
The US Dollar Index (DXY), which measures the value of the dollar against a basket of six major currencies, declined by 0.20% to 99.08.
Recently, the Financial Times reported that "two supertankers heading to China successfully passed through the Strait of Hormuz." This strengthened speculation that keeping the strait open could reduce inflationary pressure by contributing to lower energy prices and reducing the risk of global stagflation.
Regarding the United States, the minutes of the latest Federal Reserve meeting showed that most FOMC members support a hawkish stance, emphasizing the need for further monetary policy tightening if inflation continues to exceed the 2% target.
The April meeting marked the second consecutive occasion on which an increasing number of officials noted that higher borrowing costs could be justified if prices remain elevated. The minutes indicate broad agreement among policymakers that the conflict in the Middle East could significantly affect the balance of risks and the choice of an appropriate monetary policy strategy. Traders have already priced in nearly a 50% probability of an interest rate hike at the Federal Reserve's December meeting.
Across the Atlantic, the latest eurozone inflation data, which exceeded the 3% threshold, has strengthened the arguments of some European Central Bank officials in favor of taking action as early as the June meeting.
At the ECB's April meeting, policymakers discussed the possibility of raising rates, suggesting that the June 11 meeting could become the first at which the deposit rate is increased.
According to Prime Terminal data, the probability of a 25-basis-point rate hike stands at nearly 82%.
On Tuesday, ECB representative Kocher stated that a June rate hike remains possible if the situation surrounding the Iran conflict does not improve. Bundesbank President Joachim Nagel also supported this view, indicating that the ECB is moving away from its original scenario and may take action as early as June.
Francois Villeroy de Galhau of the Bank of France stated that the central bank "will be ready to act as necessary," adding that the conflict surrounding Iran poses risks to both economic growth and inflation.
On the daily chart, the EUR/USD pair is trading near 1.1629. In the short term, the pair maintains a moderately bearish outlook, remaining below the key simple moving averages (SMAs). Oscillators remain in negative territory, confirming bearish sentiment, while the 50-day SMA acts as resistance. The psychological 1.1600 level serves as support.
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