EUR/USD Consolidates Ahead of FOMC Decision Amid Escalating US-Iran Tensions

The EUR/USD pair is currently consolidating around the key 1.14 resistance level ahead of the highly anticipated FOMC decision. The market expects the Fed to keep interest rates unchanged at 3.50%-3.75%, with up to two dissenters potentially voting in favor of a rate hike.

The escalation of tensions between the US and Iran has increased the risk of a prolonged conflict, leading to higher energy prices and a stronger US dollar. However, if the Fed delivers a hawkish surprise by raising rates or having more than two dissenters vote for a rate hike, the USD could rally into new monthly highs.

On the EUR side, the ECB left interest rates unchanged at its last meeting but hinted at a potential rate hike in September if the inflation outlook deteriorates. The market is pricing in a 65% chance of a rate hike at the September meeting with a total of 37 bps of tightening expected by year-end.