The euro stabilized just above $1.14 after a recent decline that pushed the common currency to its weakest level since last July, as the US dollar broadly strengthened amid rising tensions in the Middle East. On Monday, Israeli officials signaled that the country is preparing for a possible escalation of its conflict with Iran in the coming days, cautioning that the war could drag on for “several more long weeks.” At the same time, oil prices remain above $100 per barrel, highlighting Europe’s continued vulnerability to energy shocks.
Market focus is now turning to Thursday’s European Central Bank policy meeting. Traders expect President Christine Lagarde to set out how the ECB plans to shield the eurozone economy from inflationary pressures stemming from the conflict and surging energy costs. Money markets are currently fully pricing in a rate hike by July, and are assigning roughly an 85% probability to a second increase before the end of the year.
