Euro holds steady above 1.165 as market assesses ECB interest rate outlook

⑴ The euro remains steady above 1.165, near its highest level since mid-May, as investors assess the pullback in oil prices and the European Central Bank's interest rate outlook. Iran and Oman have resumed negotiations on the management of the Strait of Hormuz, boosting hopes for the reopening of this crucial waterway and easing concerns over disruptions in energy transport.⑵ European Central Bank policymakers are prepared to raise rates at the September meeting to curb the economic impact of the Iran conflict, but are reluctant to signal further tightening afterwards. Governing Council members indicated that if the Middle East conflict persists, interest rates may need to rise further, as the resilience of the eurozone economy brings inflation risks. The currency market is pricing in less than 40 basis points of additional tightening by the European Central Bank this year, with the September rate hike almost fully priced in.