- EUR/USD weakens as a stronger US Dollar gains on rising energy prices.
- WTI price climbed as tightening supply from the Iran conflict outweighed coordinated emergency reserve releases by major economies.
- ECB’s Schnabel warned policymakers must monitor persistent energy shocks and stay alert to rising inflation risks in Europe.
EUR/USD extends its losses for the third successive session, trading around 1.1540 during the Asian hours on Thursday. The pair depreciates as the US Dollar (USD) remains stronger, as surging energy prices heightened inflationary risks and reduced the likelihood of Federal Reserve (Fed) interest rate cuts.
The February US Consumer Price Index (CPI) released on Wednesday showed inflation rising 0.3% month-over-month (MoM) and 2.4% year-over-year (YoY), largely in line with market expectations. Core CPI, which excludes food and energy, increased 0.2% MoM and 2.5% YoY.
The relatively steady inflation figures reduced fears of a sudden surge in price pressures and reinforced expectations that the Federal Reserve may keep interest rates steady in the near term. Analysts note that the latest CPI report does not yet fully reflect the recent surge in oil prices caused by geopolitical developments. US Personal Consumption Expenditures (PCE) will be eyed on Friday.
Michiel Tukker and Benjamin Schroeder of ING Group say Euro (EUR) rates remain highly sensitive to energy prices, with markets still pricing European Central Bank rate hikes in 2026. They note that falling energy prices could erase ECB hike expectations and push 2-year yields lower, while persistently high energy costs may initially steepen the euro swap curve before weighing on longer-dated rates.
Isabel Schnabel, an executive board member of the European Central Bank, said policymakers must monitor persistent energy price shocks and remain alert to upside inflation risks in Europe. Moreover, Joachim Nagel, a Governing Council member of the European Central Bank and head of the Deutsche Bundesbank, said the ECB stands ready to act if higher energy costs from the Iran war lead to persistently higher Eurozone inflation.
