The euro traded near $1.16, hovering close to the two-month low hit last week, as investors continued to weigh the fallout from the conflict with Iran, the resulting surge in energy prices, and the implications for inflation and ECB policy. Some temporary relief emerged after US President Trump said the military operation in Iran could end soon and is progressing well ahead of the initially projected four- to five-week timeline. Oil prices also pulled back below $100 per barrel after Trump signaled several potential measures to keep energy costs in check.
Last week, ECB Chief Economist Philip Lane warned that a prolonged conflict in the Middle East and a sustained reduction in regional oil and gas supplies could drive a “substantial spike” in inflation and a “sharp drop in output” across the euro area. In this context, markets now anticipate that the ECB will raise its key interest rate by at least 25 basis points at some point this year.
