EUR/USD Stays Capped as ECB Hike Bets Meet Dollar Haven Demand

Quick Take

EUR/USD still has support, but it does not have a clean breakout setup. Reuters reported on 4 June that the dollar held near a two-month high as renewed Gulf tensions lifted oil prices and weakened risk appetite, with the dollar index around 99.47. That keeps pressure on the euro even though ECB rate-hike expectations remain alive.

What Is Supporting EUR/USD

The main support comes from the ECB side. A Reuters poll published on 3 June showed that the ECB is expected to raise its deposit rate to 2.25% on 11 June, with another hike likely in September. The same poll noted that eurozone inflation reached 3.2% in May, while core inflation rose to 2.5%, both keeping the ECB under pressure to defend its inflation credibility.

This gives the euro a policy floor. EUR/USD is not being supported by a strong eurozone growth story; it is being supported because markets still believe the ECB may need to tighten further to prevent energy-driven inflation from becoming more persistent.

Why the Dollar Is Still Strong

The problem for EUR/USD is that the dollar also has support. Reuters reported that Gulf hostilities have boosted safe-haven demand for the dollar, while higher oil prices are keeping inflation risks elevated. When geopolitical risk and inflation pressure rise at the same time, the dollar often becomes harder to sell aggressively.

A Reuters FX poll also showed that the dollar is expected to stay stable in the short term before weakening later in the year, but analysts remain cautious because the Middle East war has pushed oil sharply higher and kept inflation above target in both the U.S. and eurozone.

Why the Euro’s Support Is Not Enough for a Clean Rally

The ECB story is supportive, but it is not risk-free. The same Reuters poll warned that eurozone growth expectations continue to fall, with 2026 GDP growth projected at only 0.7%, while economists flagged stagflation risk from high inflation and weak growth.

That matters for EUR/USD because rate hikes can support the euro only up to a point. If the ECB is tightening into a weak economy, investors may be less willing to chase the euro too aggressively. The currency gets support from policy, but not from a clean macro backdrop.

Near-Term View

My near-term view is that EUR/USD may stay supported on dips as long as the ECB’s June hike remains priced in. However, a stronger breakout likely needs a softer dollar, lower oil prices, or signs that U.S. inflation pressure is easing.

If Gulf tensions keep oil elevated and the Fed remains reluctant to turn dovish, EUR/USD rallies may continue to face selling pressure near recent highs.

Conclusion

The main point is simple: EUR/USD has euro-side support, but dollar pressure has not disappeared. ECB rate-hike expectations are keeping the euro from looking weak, while safe-haven dollar demand, oil-driven inflation risk, and Fed caution are keeping the pair capped.