On May 27, European Central Bank (ECB) Executive Board member Isabel Schnabel stated that the ECB should proceed with an interest rate hike in June, even if a peace agreement is reached in the current negotiations with Iran. This is because the conflict has lasted much longer than initially anticipated, and high energy prices are spreading into broader economic sectors. In an interview, Schnabel remarked, "Given the scale and persistence of the current shock, in my view, choosing to 'look through' is no longer an option." "Based on the current situation, I believe a rate hike is necessary in June." She added that after June, the ECB should avoid committing to any specific policy steps and instead reassess its stance at each meeting based on incoming data. However, she noted that the ECB's own baseline projections include two rate hikes, suggesting that a single increase might not be sufficient. Financial markets have fully priced in expectations for two hikes to the ECB's 2% deposit rate, with about a 50% probability of a third move within the next year. A Reuters survey indicated that economists are more cautious, expecting only two hikes followed by a rate cut around mid-2027.
Additionally, ECB Chief Economist Philip Lane mentioned in an interview that due to persistently high energy prices resulting from the Iran conflict, the ECB may raise its quarterly inflation forecasts in June. "We are likely to further revise up inflation projections in June," the Irish official said, "compared to the assumptions in March, it is probable that oil prices will remain elevated for a longer period." The interview was conducted on May 19 and published this Monday (May 25). The ECB currently forecasts inflation at 2.6% for 2026, while the latest monthly survey shows economists expect consumer prices to rise by 2.9% this year. Lane stated that he and his colleagues "expect indirect effects beyond energy prices" and warned that the energy shock evolving into a broader inflation issue would be a "significant risk." Markets widely anticipate that the ECB will raise the deposit rate by 25 basis points to 2.25% at its June 11 meeting. Executive Board member Isabel Schnabel, in another interview published on Monday, expressed support for this move.
Key data to watch today includes the weekly ADP employment change for the week ending May 9, the May Richmond Fed Manufacturing Index, and the May Dallas Fed Services Sector Revenue Index for the United States.
Dollar Index The Dollar Index edged higher yesterday, closing with modest gains, and is currently trading around 99.10. Support came from short-covering and technical buying near the 99.00 level. Additionally, renewed Middle East tensions reigniting safe-haven demand also contributed to the rebound in the safe-haven US dollar. Furthermore, favorable US economic data released during the session provided additional support. Today, resistance is seen around 99.50, with support near 98.50.
EUR/USD The Euro declined slightly yesterday, closing lower, and is currently trading around 1.1640. The primary pressure came from the US dollar's rebound, driven by short-covering and renewed safe-haven demand amid escalating Middle East tensions. However, hawkish comments from ECB officials, which bolstered expectations for a June rate hike, limited the pair's downside. Today, resistance is noted near 1.1750, with support around 1.1550.
GBP/USD The British pound retreated yesterday, closing with minor losses, and is currently trading around 1.3450. Pressure stemmed from profit-taking and technical selling near the 1.3500 level. The US dollar's strength, supported by positive economic data and renewed safe-haven demand, also weighed on the pound. Moreover, concerns over political uncertainty in the UK added to the downward pressure. Today, resistance is anticipated near 1.3550, with support around 1.3350.