The euro inched back above $1.16, halting its recent slide as a sharp rally in the yen pressured the US dollar and softer oil prices provided some support. The yen’s advance reflected growing expectations of an interest rate hike by the Bank of Japan and the prospect of official intervention, fueling broad-based dollar weakness. At the same time, Brent crude pulled back from six-week highs after US President Donald Trump said the renewed US military campaign in Iran would be short-lived.
Despite the rebound, the euro remains close to a two-week low, weighed down by concerns over energy-driven inflation, rising interest rates and fiscal sustainability in countries such as France and the UK. Money markets still fully price in a 25-basis-point European Central Bank rate increase to 2.5% next week. Investors are also assigning an almost 100% probability to the ECB deposit rate reaching 3% by June 2027, implying two additional rate hikes by mid-2027.
