The euro was little changed at $1.164, hovering near the six-week low reached last week, as renewed unrest in the Middle East weighed on market sentiment. Hopes for a resolution to the three‑month US‑Iran conflict— which has severely disrupted Middle Eastern oil and gas supplies and pushed global inflation higher—faded after Washington confirmed defensive strikes in southern Iran, suggesting any peace deal remains distant.
On the policy front, ECB official Isabel Schnabel told Reuters that the central bank should raise interest rates in June even if a peace agreement is struck, citing the magnitude and persistence of the energy shock. Other policymakers have also recently advocated for tighter policy. Money markets now assign nearly a 90% probability to a June rate hike and are pricing in around 60 basis points of additional tightening by year-end, implying at least two quarter-point increases.
