EUR/USD seems fragile below 1.1700 as Middle East war boosts energy prices

The EUR/USD pair trades flat at around 1.1680 during the Asian trading session on Tuesday, but broadly seems vulnerable, being close to its five-week low. The major currency pair is under pressure as surging oil prices due to the United States (US)-Israel war with Iran have increased the risks of higher inflation for the Old Continent.

Global oil prices are up almost 8% from Monday as Iran threatens to attack tankers passing through the Strait of Hormuz, a sea route from which 20% of global crude oil is shipped. On Monday, Fox News reported two attacks on tankers in or near the Strait of Hormuz amid the US-Iran war.

On the domestic front, investors await preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data for February, which will be published at 10:00 GMT. The HICP report is expected to show that both headline and core inflation grew at a steady pace of 1.7% and 2.2% Year-on-Year (YoY), respectively.

Latest comments from European Central Bank (ECB) President Christine Lagarde, which came on February 26 in her statement before the Committee on Economic and Monetary Affairs (ECON) of the European Parliament, signaled that she is confident about inflation stabilizing at the central bank’s 2% target in the medium term. Lagarde added, “I am really convinced that we should maintain data dependent approach.”

Meanwhile, dismal market sentiment due to the war in the Middle East has increased the safe-haven demand of the US Dollar (USD). As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, clings to Monday’s gains near 98.50.

Domestically, rising oil prices are expected to prompt inflation in the US, a scenario that would allow the Federal Reserve (Fed) to hold interest rates steady in the near term.