Euro advances on rising ECB rate hike odds, US NFP eyed

EUR/USD extends gains for the second successive day, trading around 1.1620 during the Asian hours on Friday. The Euro (EUR) finds support as recent Eurozone inflation data solidified market expectations for a near-certain 25-basis-point rate hike by the European Central Bank (ECB) at its June 11 meeting. Traders are pricing in a total of two or three rate increases for the year.

Eurozone headline inflation climbed to 3.2% in May, marking its highest level in over two and a half years. Furthermore, core inflation accelerated to 2.5%, and services inflation rose to 3.5%, a clear indication that price pressures are broadening significantly beyond the volatile energy sector.

The EUR/USD pair holds losses as the US Dollar (USD) flatlines amid market caution ahead of the upcoming US Nonfarm Payrolls (NFP) report for fresh direction. Present projections indicate that the US economy added 85,000 jobs in May, with the Unemployment Rate expected to hold steady at 4.3%.

Traders adopt caution due to a complex web of developments surrounding a potential US-Iran peace agreement to end recent hostilities. Tensions remain highly elevated following warnings from Iranian Foreign Minister Abbas Araghchi, who declared that the strategic Strait of Hormuz falls within Iranian and Omani territorial waters and asserted that US regional military bases are active targets for retaliation.

US President Donald Trump offered an optimistic outlook early Wednesday, stating that Iran is close to signing a peace framework and that a breakthrough could occur over the weekend. Adding to the regional complexity, Israeli Defense Minister Israel Katz affirmed on Thursday that Israel will sustain military operations in Lebanon despite a ceasefire, preventing displaced residents from returning.