Euro languishes around 1.1600 amid Fed hiking hopes, fresh tensions in Iran

The Euro (EUR) remains close to its lowest point of the week at 1.1578 against the US Dollar (USD) on Monday, as bulls have struggled to push it above the 1.1600 mark. This lack of upward momentum can be attributed to two key factors: heightened expectations of Federal Reserve (Fed) interest rate hikes and increasing unease over the resumption of hostilities in Iran.

The Euro faced further pressure on Friday after Fed Chairman Kevin Warsh's hawkish remarks at the Jackson Hole summit, which suggested the central bank's focus on curbing inflation. Following Warsh's speech, the probability of a September rate hike rose to 61%, up from 36% the previous day. Additionally, the US military conducted its first strikes against Iran since late July, targeting the island of Larak where the Islamic Revolutionary Guard Corps (IRGC) was allegedly preparing to place sea mines in the Strait of Hormuz.

Tehran subsequently retaliated by striking US airbases in Jordan and the UAE, leading to a more complicated and volatile situation. Traders are currently waiting for Germany's preliminary HICP figures for August, which are anticipated to show a year-on-year inflation increase to 3.1% from 2.8% in July. These mixed data points, along with the packed calendar of upcoming releases, including the US labor market report for August, highlight the importance of US labor conditions and Eurozone price dynamics in shaping near-term policy expectations and market sentiment.