Market Highlight 03.06.2026

Inflation in the euro area continued to rise, paving the way for a possible interest-rate increase by the European Central Bank next week. Higher energy costs and rising service prices pushed inflation in the euro area up to 3,2% in May, well above the Central Bank’s target. Meanwhile, a PMI survey released on Monday showed that manufacturers’ input costs increased at the fastest pace since May 2022. Before the first U.S and Israeli attacks on Iran in late February, inflation in the euro area had been close to the ECB’s 2% target for around a year and had fallen below 1,7% in January 2026. However, the conflict and the impact of the closure of the Strait of Hormuz have led to a sharp rise in global oil and natural gas prices, with the euro area particularly vulnerable as a net energy importer. While inflation in France, Italy, and Spain accelerated in May, it declined in Germany, the euro area’s largest economy, mainly thanks to the fuel tax cut introduced at the start of the month. Oil prices have eased in recent weeks, although they remain around 30% higher than in February, when the war in Iran began.

Before the war, the market had expected the European Central Bank to keep policy rates unchanged this year. Now, markets are pricing in an ECB rate increase from 2% to 2,25% on 11/6, which would mark the first hike in nearly 3 years. Expectations also suggest there could be one to two additional 25-basis-point rate hikes later this year, further supporting the EUR.

Domestically, interbank USD/VND edged up by around VND 10 and traded mainly in the 26.330 - 26.335 range on Tuesday. The effective daily ceiling was also raised by a further VND 4 to 26.398.

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