ECB Hike Leaves Euro Flat. Iran Tensions Bolster Dollar.

The euro traded in a narrow range after the European Central Bank delivered its widely expected 25-basis-point rate hike. The decision matched market forecasts. What drove the session instead was a sharp escalation in Middle East rhetoric that pushed the dollar higher across the board.

Policymakers raised inflation forecasts and cut their growth projections. They acknowledged that "the war in the Middle East is generating inflation pressures," adding that higher energy costs would feed into food, goods, and services prices over time. That admission marks a clear recognition that the inflation shock is spreading beyond oil markets, traders said.

The Governing Council repeated its "data-dependent and meeting-by-meeting approach" and stressed it is "not pre-committing to a particular rate path." No forward guidance appeared in the statement. Without a signal on the next move, traders had little reason to reprice Eurozone rate expectations. ECB Raises Rates to Preempt Iran War's Energy Price Surge covered the earlier meeting context.

With the ECB event cleared, attention snapped back to the Middle East. US President Donald Trump escalated sharply, declaring the US military would hit Iran "VERY HARD TONIGHT" and promising to take control of key Iranian oil infrastructure, including Kharg Island. He said an operation to assume "total control" of Iran's oil and gas markets would happen in the near future.

Those comments followed days of military action. The US launched strikes it described as "self-defense" operations. Iranian media reported fresh explosions at multiple locations. Kuwait and Bahrain remained on heightened alert after missile and drone attacks linked to the broader conflict.

The dollar was the strongest major currency on the session, followed by the yen and the euro. The New Zealand dollar led losses, with the Australian and Canadian dollars also under pressure. That lineup fits a classic risk-off move: investors seeking safety while watching for the next catalyst out of the Gulf.

For currency markets, the chain of impact runs through oil. A sustained spike in crude prices would hit the euro through higher energy import costs and weaker growth expectations. It would also strengthen the dollar's safe-haven bid. The ECB's own forecasts now embed that risk, the central bank has no tools to address a supply-driven inflation shock from geopolitics.

EUR/USD traded in a narrow range above 1.1499, with intraday bias neutral. The pair needs to break 1.1685 resistance to shift the near-term outlook. A break below 1.1408 would revive the case for a medium-term bearish reversal, traders said. The bigger picture still favors the euro's corrective move within a longer uptrend. The 38.2% retracement of the 1.0176 to 1.2081 rally at 1.1353 held as support, and the 55-week EMA at 1.1547 also provided a floor. Focus is back on the 1.20 resistance cluster. EUR/USD profile shows the key levels.

GBP/CHF completed a potential head-and-shoulders bottom as markets priced divergent paths for the Bank of England and Swiss National Bank. The BoE is still discussing another hike. The SNB is expected to stay at 0%. The breakout may signal a larger trend reversal, though the Iran risk overhang means that scenario depends on oil markets, not monetary policy.

Brent crude traded as though diplomacy would eventually prevail, despite the Strait of Hormuz closure and escalating Gulf state involvement. A developing double-bottom pattern may be the first sign that oil markets are starting to question that assumption.

US producer prices surged to their highest annual rate since 2022. Core producer inflation recorded its strongest monthly increase in more than three years. That pipeline pressure complicates the Fed's path and reinforces the dollar's yield advantage. US PPI Surges 6.5% in May, Fastest Since 2022, on Energy Spike details the data.

The ECB meeting is done. The next catalyst is the trajectory of the US-Iran confrontation and the pending US inflation data. For now, the dollar holds the bid, and the euro waits.