Euro Stalls at $1.15 Amid Middle East Tensions and Weak German Data

The euro held steady at $1.15, attempting to recover from a recent decline that saw it hit its lowest level since last July. Investors remained focused on escalating Middle East tensions, disappointing German confidence data, and a packed week of central bank decisions. US President Donald Trump suggested military operations in Iran would extend beyond this week, while Israeli officials warned the conflict could last "several more weeks." On the economic front, German investor morale plunged in March amid fears that rising prices could derail the country’s recovery. Attention now turns to the European Central Bank’s policy meeting on Thursday, where interest rates are expected to remain unchanged and ECB President Christine Lagarde is anticipated to address how the bank plans to shield the eurozone from inflationary pressures tied to the conflict. Markets now fully price in a July rate hike, with an 85% chance of a second increase by year-end.

The euro traded above the $1.14 level after a recent slide that pushed the common currency to its weakest point since last July, as the US dollar strengthened broadly amid escalating tensions in the Middle East. On Monday, Israeli officials indicated that the country is preparing for a potential escalation in its conflict with Iran in the coming days, warning the war could continue for “several more long weeks.” Meanwhile, oil prices have remained above $100 per barrel, underscoring Europe’s ongoing vulnerability to energy shocks. Attention is now shifting to the upcoming policy meeting of the European Central Bank on Thursday. Traders expect President Christine Lagarde to outline how the central bank intends to protect the eurozone economy from inflationary pressures linked to the conflict and surging energy prices. Money markets are currently fully pricing in a ECB rate hike by July, with roughly an 85% probability of a second increase by the end of the year.

The euro extended its recent decline, falling below $1.15 to its weakest level since late July, as the US dollar gained broadly amid escalating tensions in the Middle East. With no signs of de-escalation, the common currency faced additional strain from oil prices climbing above $100 per barrel, highlighting Europe’s persistent vulnerability: rising energy costs weigh on the trade balance and dampen the euro. The surge in energy prices has prompted money markets to price in two European Central Bank rate hikes this year, a sharp reversal from last month, when no moves were expected. Focus is turning to the ECB’s upcoming policy meeting, where President Christine Lagarde is expected to signal how the bank plans to shield the eurozone from inflationary pressures stemming from the conflict. Earlier this week, she emphasized that the ECB would act to prevent a repeat of the inflation shocks seen after Russia’s invasion of Ukraine.