The euro edged higher against a basket of major global currencies during European trading on Tuesday, attempting to recover from a two-week low against the US dollar and heading for its first daily gain in three sessions, supported by a pause in the dollar's recent rally ahead of the release of key US inflation data for June.

As global oil prices continue to surge, inflationary pressures are mounting on European Central Bank policymakers, reinforcing expectations that the ECB could raise interest rates at its September meeting.

The Price

The euro rose around 0.15% against the US dollar to $1.1397, after opening at $1.1382 and touching an intraday low of $1.1378.

The euro closed Monday down 0.3% against the dollar, marking its second consecutive daily loss and falling to a two-week low of $1.1377 as renewed military tensions between the United States and Iran boosted demand for the greenback.

US dollar

The US Dollar Index slipped more than 0.1% on Tuesday, pulling back from a two-week high of 101.33 as the greenback paused its advance against a basket of global currencies.

Alongside profit-taking, investors have refrained from adding fresh long-dollar positions ahead of the release of June's US inflation data, which is expected to provide crucial clues about whether the Federal Reserve will raise interest rates later this year.

Federal Reserve Governor Christopher Waller said on Monday that the US central bank may need to raise interest rates "in the near term" if upcoming data shows inflation remains well above the Fed's 2% target.

Global oil prices

Oil prices climbed more than 2% on Tuesday, extending gains for a second consecutive session to their highest level in a month as military exchanges between the United States and Iran continued around the Strait of Hormuz.

The continued surge in oil prices has revived fears of accelerating inflation, increasing the likelihood that major central banks could raise interest rates in the near future, marking a sharp reversal from pre-war expectations for rate cuts or an extended pause in monetary tightening.

Latest developments in the Iran conflict

US forces carried out an intensive five-hour bombing campaign targeting Revolutionary Guard military positions in several Iranian cities.

President Donald Trump proposed imposing a 20% tariff on goods passing through the Strait of Hormuz and reinstated the naval blockade on Iran.

CENTCOM officially announced that it will resume enforcing the naval blockade on vessels traveling to and from Iranian ports beginning at 4:00 p.m. US Eastern Time on Tuesday.

Iran's Revolutionary Guard announced additional missile and drone attacks on US bases in several Gulf countries, while also targeting oil tankers attempting to transit the Strait of Hormuz.

European interest rates

Amid the rally in global oil prices, money markets have raised the probability of a 25-basis-point European Central Bank rate hike in July to above 35%.

Markets are now pricing the probability of a 25-basis-point ECB rate increase at the September meeting above 95%.

Investors are awaiting additional eurozone data on inflation, employment, and wage growth to reassess expectations for the ECB's policy path.