The euro extended its slide toward $1.15 as investors flocked to the safety of the US dollar amid mounting risks surrounding the Iran conflict. A 48-hour US deadline for Iran to reopen the Strait of Hormuz expires today, with President Trump threatening strikes on Iranian power plants if Tehran fails to comply. Tehran has vowed retaliatory attacks on Gulf energy and desalination infrastructure, stoking fears of a broader regional escalation.
Against this tense backdrop, traders have intensified bets on European Central Bank tightening, now pricing in at least three rate hikes in 2026. The ECB left interest rates unchanged last week but raised its inflation outlook and downgraded growth forecasts, citing growing risks linked to the Middle East crisis. Joachim Nagel signaled that a rate increase as early as April remains possible if inflationary pressures worsen, while François Villeroy de Galhau reiterated the ECB’s readiness to act decisively.
