Euro languishes around 1.1600 amid Fed hiking hopes, fresh tensions in Iran

EUR/USD bounced up from 1.1575 lows but is struggling to extend gains beyond 1.1600.
Rising Fed tightening hopes and risk aversion amid the resumption of hostilities in Iran are capping the Euro's upside attempts.
German preliminary HICP is expected to show that price pressures accelerated in August.

Guillermo Alcala FXStreet

The Euro (EUR) posts marginal gains against the US Dollar (USD) on Monday, but it remains close to Friday’s lows at 1.1578, as bulls fail to find significant acceptance above 1.1600. A combination of rising bets of Federal Reserve (Fed) interest rate hikes and cautiousness amid the resumption of hostilities in Iran is weighing on Euro rallies ahead of the release of preliminary German Harmonized Index of Consumer Prices (HICP) data for August.

The common currency dropped sharply on Friday, following an unexpectedly hawkish rhetoric by the Fed Chairman Kevin Warsh at the Jackson Hole summit. Warsh said that the central bank should focus on prices right now and added that they have “work to do” to bring inflation to the bank’s 2% target. Bets for a September hike rose to 61% after the speech from 36% the day before, according to the CME’s FedWatch Tool.

Tensions in Iran dampen risk appetite

Apart from that, the US military attacked Iran for the first time since late July on Sunday, with strikes on the island of Larak, where the Islamic Revolutionary Guard Corps (IRGC) were allegedly preparing missiles to place sea mines in the Strait of Hormuz. Tehran responded by targeting US airbases in Jordan and the United Arab Emirates in a tit-for-tat reaction that complicates the resolution of the conflict even further. The market's risk-averse reaction is posing additional pressure on the Euro.

Against this background, traders await Germany’s preliminary HICP figures from August, which are expected to show that yearly inflation accelerated to 3.1% from 2.8% in July. Landers data published early on the day has shown mixed figures,

Strategists at Danske Bank highlight that the calendar remains packed with market-moving releases, pointing to “another crucial event for the US market with the labour market report for August, which is released on Friday.” They add that, alongside the US jobs data, “we have inflation data from the Eurozone,” underscoring that the twin focus on US labour conditions and Eurozone price dynamics will be central to shaping near-term policy expectations and market sentiment.

Economic Indicator

Harmonized Index of Consumer Prices (MoM)

The Harmonized Index of Consumer Prices (HICP), released by the German statistics office Destatis on a monthly basis, is an index of inflation based on a statistical methodology that has been harmonized across all European Union (EU) member states to facilitate comparisons. The MoM figure compares the prices of goods in the reference month to the previous month. Generally, a high reading is bullish for the Euro (EUR), while a low reading is bearish.

Economic Indicator

Harmonized Index of Consumer Prices (YoY)

The Harmonized Index of Consumer Prices (HICP), released by the German statistics office Destatis on a monthly basis, is an index of inflation based on a statistical methodology that has been harmonized across all European Union (EU) member states to facilitate comparisons. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is bullish for the Euro (EUR), while a low reading is bearish.

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