On May 15, European Central Bank (ECB) Governing Council member and Governor of the Bank of Latvia, Martins Kazaks, indicated that the ECB might need to raise borrowing costs if rising oil prices translate into inflation expectations. "Oil prices have increased, and we are seeing this gradually pushing up inflation. If inflation expectations begin to deteriorate, the ECB will be forced to hike rates," Kazaks stated. Markets widely anticipate a 25-basis-point rate increase at the ECB's June meeting. Some officials have signaled that current data provides sufficient grounds to support such a move, while others believe further evidence of a weakening economic outlook is needed before acting. Kazaks commented, "The financial markets are currently pricing in a rate hike—I can neither confirm nor deny this. We will wait and see. However, looking at scenario analyses and forecasts, the current situation is more severe than the initial baseline predictions."
Meanwhile, the UK economy showed robust growth at the start of 2026, suggesting that businesses and consumers remained resilient in the initial weeks following the outbreak of conflict in the Middle East. Data released by the UK's Office for National Statistics on Thursday revealed that first-quarter Gross Domestic Product (GDP) grew by 0.6% quarter-on-quarter, up from 0.2% in the fourth quarter of last year, marking the fastest pace in a year. This figure matched the median forecast from economists and exceeded the Bank of England's earlier projection of 0.5%. James Benford, Director of Surveys and Economic and Social Statistics at the Office for National Statistics, noted, "One consequence of delayed spending is stronger growth in the first quarter—as we are currently observing, and we have seasonally adjusted for this. However, it is difficult to determine how much of this represents a new normal following the shift to annual fiscal policy changes, and how much is merely a temporary adjustment related to the post-pandemic period."
Data to watch today includes the US New York Empire State Manufacturing Index for May, Canada's Manufacturing Sales month-on-month for March, and the US Industrial Production month-on-month for April.
US Dollar Index The US Dollar Index advanced yesterday, reaching a 10-day high, and is currently trading around 99.00. Continued safe-haven demand amid heightened market risk aversion supported the dollar, alongside a resurgence in expectations for Federal Reserve rate hikes following a series of generally positive US economic data. Resistance is seen near 99.50 today, with support around 98.50.
EUR/USD The euro declined slightly yesterday, closing lower on the day and currently trading near 1.1650. The primary pressure came from the US dollar's strength, as the Dollar Index approached the 99.00 level, buoyed by safe-haven flows and renewed Fed rate hike expectations. However, hawkish remarks from ECB officials during the session limited the pair's downside. Resistance is anticipated near 1.1750 today, with support around 1.1550.
GBP/USD The British pound fell yesterday, breaching the 1.3400 level and hitting a 5-week low, currently trading around 1.3370. The main downward pressure stemmed from the US dollar's rally to a 10-day high, driven by revived Fed rate hike expectations and safe-haven demand. Additionally, increasing concerns over UK political uncertainty weighed on the sterling. Although UK economic data released during the session showed solid performance, it had limited impact on the market. Resistance is eyed near 1.3450 today, with support around 1.3300.
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