Euro Stays Flat as Middle East Tensions Renew Hormuz Threats

The EUR/USD pair held steady near 1.1445 during early Asian trading on Friday, with investors closely monitoring escalating Middle East conflicts. Market attention remains focused on geopolitical risks and upcoming economic data, including the preliminary July Michigan Consumer Sentiment Index.

Reuters reported Thursday that Iran has instructed Yemen’s Houthi forces to prepare for potential closure of the Red Sea oil shipping route if the U.S. conducts strikes on Iranian infrastructure, signaling a significant escalation in regional tensions that could disrupt global energy markets.

Additional explosions were reported in Iran’s Bandar Abbas, Qeshm, and Ahvaz regions, with sonic booms heard in Kuwait and Basra, further fueling concerns over stability in the region.

U.S. President Donald Trump warned this week that military action targeting Iran’s bridges and power facilities could occur next week unless diplomatic negotiations resume. Rising Middle East tensions may reinforce demand for safe-haven assets like the U.S. Dollar, potentially pressuring the EUR/USD in the near term.

The European Central Bank is anticipated to maintain current interest rates through its upcoming Thursday meeting, though markets expect a rate hike in September as renewed energy price surges heighten inflation risks, per Reuters.

Federal Reserve official Christopher Waller’s recent remarks carried a cautiously hawkish tone, with the Fed’s Speechtracker score at 6.4/10—slightly above the historical average of 6.3—suggesting a wait-and-see approach. His emphasis on one month of declining inflation data not constituting a long-term trend, alongside references to AI-driven economic shifts and geopolitical risks, aligns with a patient yet vigilant monetary policy stance. The Fed Sentiment Index rose to 126.33, reinforcing market expectations for sustained restrictive policies that support the U.S. Dollar against the Euro and Yen.

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