The euro saw a decline to $1.15, after previously reaching a three-and-a-half-year peak of $1.163 on June 12. This drop occurred against a backdrop of global market instability due to escalating tensions in the Middle East. Tensions intensified after Israel targeted Iran's nuclear facilities and key figures, sparking concerns over the potential for a broader conflict. Israel has declared Iran's nuclear ambitions a dire threat to its existence and is committed to continuing its military actions. In response, Iran launched hundreds of drones and threatened further retaliation.
From a monetary policy perspective, the euro has been buoyed by differing signals from the European Central Bank (ECB) and the US Federal Reserve. Recent statements from the ECB have strengthened the belief that it may pause its easing measures to evaluate the repercussions of new US tariffs. Conversely, the US dollar has weakened, affected by softer inflation data and escalating trade tensions, which has led to speculation that the Federal Reserve might consider a rate cut as soon as September.
