The euro has weakened rapidly against the US dollar even as a growing number of European Central Bank officials signal the need for tougher policy, underscoring mounting pressure on the ECB.

Yannis Stournaras, a member of the ECB Governing Council and governor of the Bank of Greece, added his voice on Tuesday to the chorus of officials warning that monetary policy tightening is becoming unavoidable. He said that if oil remains at current levels, the ECB will have no choice but to raise interest rates. "But we all hope to avoid that," he added.

Stournaras indicated that the policy outlook has shifted: the debate is no longer between a baseline and a downside scenario for the economy but between a downside and a hard-landing scenario. That represents a material change in tone from a few weeks ago, when most officials stressed caution and the need to wait for fresh data.

Fresh inflation data reinforces those concerns. Eurostat's preliminary estimate showed annual inflation in the euro area rising to 3.0% in April from 2.6% in March. Energy remains the main driver: energy prices rose 10.9% year on year in April versus 5.1% in March. Core inflation, which strips out energy and food, eased slightly, giving the ECB a formal rationale for restraint, but the 3.0% headline rate — the highest since September 2023 — is increasingly difficult to ignore politically.

Brent crude traded around $105 a barrel on Thursday, having remained above $100 for three consecutive weeks. The Strait of Hormuz remains effectively closed, talks with Iran are at an impasse, and there is no immediate sign of resolution. Stournaras warned that persistently high oil prices would hit both inflation and growth, raising the specter of stagflation that European policymakers most want to avoid.

Markets and economists broadly expect a 25-basis-point rate increase at the ECB's June meeting. However, officials face a choice: if the inflation uptick proves moderate, a hike may not be required; if inflation accelerates and persists, the ECB will have to consider far tougher measures. In short, the outlook hinges on developments in the Strait of Hormuz and the duration of the energy crisis.

Even that scenario offers only limited support for the euro, as many traders fear a parallel rise in US prices and are therefore favoring the dollar as a safe-haven currency.

Technical outlook for EUR/USD

From a technical perspective, buyers need to consider how to breach the 1.1660 level in order to target a test of 1.1680. A move beyond that could allow the pair to reach 1.1705, with an ultimate target near 1.1725, but doing so without support from large market participants will be difficult. On the downside, only a decline toward roughly 1.1630 is likely to prompt significant intervention from major buyers. If demand is absent at that level, it would be prudent to wait for a fresh low near 1.1610 or to consider opening long positions from around 1.1590.