The euro slipped toward $1.15, trading near its weakest level since early April, after the European Central Bank delivered a widely anticipated 25-basis-point interest rate increase—its first hike since 2023. Policymakers pointed to surging energy prices and persistent inflation pressures, aggravated by the conflict involving Iran and disruptions to oil shipments through the Strait of Hormuz.
In tandem with the move, the ECB raised its inflation projections. Headline inflation is now forecast at 3.0% for 2026, up from 2.6%, and 2.3% for 2027, up from 2.0%. Core inflation is expected to reach 2.5% in both 2026 and 2027, revised higher from 2.3% and 2.2%, respectively.
The growth outlook was marginally downgraded. Eurozone GDP is now projected to expand by 0.8% in 2026, down from 0.9%, and by 1.2% in 2027, down from 1.3%.
At the same time, the US dollar held firm, supported by ongoing tensions in the Middle East. Repeated military strikes and faltering diplomatic efforts have dimmed prospects for a resolution between the United States and Iran, reinforcing demand for the greenback.
