Euro flattens against US Dollar while entering the weekend

• The Euro consolidates against the US Dollar at around 1.1445.
• Escalating US-Iran military aggression could dampen market sentiment.
• ECB’s Nagel said that the central bank will act if needed.

The Euro (EUR) trades flat against the US Dollar (USD) at around 1.1445 during the European trading session on Friday. The EUR/USD pair is expected to trade with caution amid continued military aggression between the United States (US) and Iran.

In the European trade, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades flat around 101.70.

Earlier in the day, Iran asked Yemen’s Houthi militia to stand ready to close the Red Sea oil route if the US strikes Iranian power infrastructure, Reuters reports.

The threat from Iran is a response to remarks from US President Donald Trump, in an interview with Fox News, in which he said that military forces would be authorized to attack Iranian bridges and power plants if the nation doesn’t come to the table for negotiations.

A further disruption in the global energy supply would squeeze the already-low global oil supply, which could further accelerate fears of high inflation globally.

On the monetary policy front, the European Central Bank is expected to deliver more interest rate hikes amid fears of second-round inflation effects in the Eurozone.

ECB Governing Council Member and President of the Deutsche Bundesbank, Joachim Nagel, said earlier this week that the central bank remains vigilant to Middle East developments, while warning that policymakers will act decisively if necessary.

Nagel keeps ECB vigilant but tempers hawkish edge for the Euro

ECB's Nagel scores 6.4/10 on FXS Speechtracker, below the historic 7.2/10 baseline, signaling a slightly softer tone versus past communications. The emphasis on reacting "with caution" but "decisively if necessary" points to a moderately hawkish stance, yet less forceful than usual, suggesting the Euro may see limited upside unless data re-energizes policy conviction.

The pledge that monetary policy will "maintain its vigilant stance" reinforces a readiness to tighten or resist premature easing, supporting the Euro against more dovish expectations. However, the reference to recent geopolitical "hopes and disappointments" introduces uncertainty, implying that while vigilance remains, conviction is constrained, which caps the hawkish impact reflected in the lower FXS Speechtracker score.