Euro slips as markets expect US interest-rate hikes

The euro fell below $1.16 against the dollar as markets anticipated higher US interest rates and investors turned more cautious amid rising tensions in the Middle East. The currency later recovered some ground during European trading.

At around 1500 GMT, the euro traded at $1.1613, compared with $1.1610 at the end of the previous session. The European Central Bank set its reference rate at $1.1596.

Expectations for a US rate increase in September strengthened after Federal Reserve Chair Kevin Warsh said the central bank would need to act if inflation did not fall to its 2% target.

Markets have also priced in an increase in the ECB’s deposit rate in September. The rate currently stands at 2.25%, while August harmonized inflation reached 2.9% in Germany, 4.5% in Spain, 2.7% in France and 3.3% in Portugal.

The euro traded between $1.1585 and $1.1613 during the session. The market moves followed US strikes on Iran’s Larak Island and Iranian missile launches against US bases in Jordan and the United Arab Emirates, according to the report.