EUR/USD Treading Water Amid Hawkish Fed and Middle East Tensions

The EUR/USD pair has stabilized near 1.1590 during the early Asian session on Thursday, but its potential for growth may be limited due to hawkish Federal Reserve (Fed) expectations and escalating conflict in the Middle East.

Fed Chair Kevin Warsh warned last week that policymakers may need to tighten again if inflation fails to move convincingly towards 2%, which has lifted expectations of a September rate hike to 62.3% from below 40% previously, according to the CME FedWatch tool.

Rising tensions in the Middle East could also boost safe-haven flows and support the US dollar.

Strategists at Scotiabank note that the recent bout of Euro weakness has aligned with a rebound in energy markets, sparking concerns about the euro area's terms of trade as a major energy importer.