The euro strengthened against a basket of global currencies during European trading on Wednesday, extending gains against the US dollar for a second consecutive session and moving closer to a two-week high, supported by a weaker US dollar following softer-than-expected US inflation data.

As global oil prices continue to climb, inflationary pressures on European Central Bank policymakers are resurfacing, reinforcing expectations that the ECB could raise interest rates in September.

The Price

The euro rose about 0.2% against the US dollar to $1.1442, after opening at $1.1420 and touching an intraday low of $1.1417.

The euro closed Tuesday up 0.35% against the US dollar, recording its first daily gain in three sessions and reaching a two-week high of $1.1462 after weaker-than-expected US inflation data.

US dollar

The US Dollar Index fell 0.15% on Wednesday, extending losses for a second consecutive session as the greenback weakened against a basket of global currencies.

US June inflation data came in below expectations, driven by lower energy prices, signaling easing inflationary pressures on Federal Reserve policymakers.

US Treasury yields declined as expectations for near-term Federal Reserve rate hikes eased, while investors await additional economic data and comments from Fed officials for clearer guidance on the future path of monetary policy.

Later today, the United States will release June Producer Price Index (PPI) data, while Federal Reserve Chair Kevin Warsh will continue his semiannual testimony before the US Congress.

Global oil prices

Oil prices rose more than 0.5% on Wednesday, extending gains for a third consecutive session and approaching the one-month high reached on Tuesday as military clashes between the United States and Iran continued around the Strait of Hormuz.

Iran conflict developments

The United States officially began enforcing its naval blockade of Iranian ports while monitoring vessels entering and leaving the country.

US forces carried out fresh strikes targeting Iranian missile systems and air defense positions near the Strait of Hormuz in a further escalation of the conflict.

Iran announced new drone attacks against US-linked targets and military bases across the region while maintaining a heightened state of military alert.

Iranian authorities said Washington is mistaken if it believes its actions will force Tehran back to the negotiating table.

US President Donald Trump issued a public warning to Tehran, threatening to destroy all power stations and key bridges across Iran "next week" unless the country immediately agrees to resume negotiations.

European interest rates

Amid rising global oil prices, money markets have increased pricing for a 25-basis-point European Central Bank rate hike at the July meeting to above 35%.

Market pricing for a 25-basis-point ECB rate hike in September has climbed above 95%.

Investors now await additional eurozone inflation, employment, and wage data to further refine expectations for the ECB's policy outlook.