The euro traded just below $1.16 and was on course for a 0.5% weekly gain, supported by a weaker US dollar amid growing optimism over a potential Middle East peace agreement. US President Donald Trump indicated that a deal between the US and Iran could be signed as early as this weekend, although Tehran has not yet confirmed any final decision.
At the same time, investors continued to assess the European Central Bank’s decision to raise interest rates for the first time in three years, a preemptive move designed to head off a broader inflation surge fueled by rising energy costs. Money markets are now pricing in an additional rate increase, most likely in September, though a move in July remains on the table.
The ECB also upgraded its inflation projections, now expecting headline inflation at 3.0% in 2026 (up from 2.6%) and 2.3% in 2027 (up from 2.0%). Core inflation is now forecast at 2.5% for both 2026 and 2027 (revised up from 2.3% and 2.2%, respectively). By contrast, the growth outlook was nudged lower, with Eurozone GDP now projected at 0.8% in 2026 and 1.2% in 2027.
