Euro Hits 7-Week High

The euro rose modestly to $1.165, partially recovering from early-week losses, as the dollar softened following reports that Iran had offered to discuss terms for ending the war. According to The New York Times, a day after US-Israel attacks began, operatives from Iran’s Ministry of Intelligence made an indirect approach to the CIA. Israeli officials, however, have urged Washington to ignore the approach for now, according to the report. Despite the slight rebound, the euro remains near one-and-a-half-month lows amid the ongoing Middle East conflict and concerns over rising energy costs. February Eurozone data showed annual inflation at 1.9% and core inflation at 2.4%, both above expectations. Markets now price roughly a 40% chance of an ECB rate hike by year-end, a sharp reversal from last week when a rate cut seemed equally likely.

The euro held earlier losses, trading around $1.16, its weakest level since mid-January, as the US dollar strengthened on safe-haven demand amid a sharp escalation in the Middle East conflict, despite stronger-than-expected Eurozone inflation data. US President Donald Trump said the military campaign against Iran could last four to five weeks but emphasized that US forces are prepared to extend operations if needed. Meanwhile, higher energy costs following the formal closure of the Strait of Hormuz and the ongoing halt of Qatari LNG exports are expected to intensify inflationary pressures across Europe, potentially prompting the ECB to adopt a more hawkish monetary policy stance. Eurozone February data showed annual inflation unexpectedly at 1.9% and core inflation at 2.4%, both above forecasts. Traders are now pricing in roughly a 40% probability of an ECB rate hike by year-end, a sharp reversal from late last week when markets assigned a similar likelihood to a rate cut.

The euro weakened toward $1.16, marking its lowest level since mid-January, as the US dollar gained on heightened safe-haven demand amid a sharp escalation in the Middle East conflict. US President Donald Trump stated that US munitions stockpiles at medium and upper-medium grades are at record highs and “virtually unlimited,” adding that wars could be sustained “forever.” At the same time, a spike in natural gas and crude oil prices, after the formal closure of the Strait of Hormuz and the continued halt of Qatari LNG exports, intensified concerns over global energy supply. The surge in energy costs is expected to fuel inflationary pressures in Europe, potentially pushing the European Central Bank toward a more hawkish policy stance. Investors are also awaiting key inflation data from Italy and the broader Eurozone, due later today, for further clues on the region’s price outlook and monetary policy trajectory.