FX.co ★ Euro Nears One-Year Low as Middle East Tensions Weigh

The euro traded just below $1.14, hovering near a one-year low against the US dollar, as investors reacted to escalating tensions in the Middle East, higher oil prices, and mounting fears that inflation will weigh on monetary policy and economic growth. Uncertainty over energy supplies intensified after the US military continued strikes against Iran, following President Donald Trump’s reinstatement of a blockade on Iranian shipping and his proposal of a 20% fee for securing passage through the Strait of Hormuz. In response, markets increased their bets on further European Central Bank rate hikes, with money markets now projecting a deposit rate of 2.70% by December, up from 2.25%, and fully pricing in an increase in September. In the US, Federal Reserve Governor Christopher Waller cautioned that the central bank may need to raise interest rates “in the near term” if inflation stays above its 2% target. Investors are now focused on upcoming comments from Federal Reserve Chair Kevin Warsh and the release of US inflation data later today.