Euro Remains Weak Ahead of ECB Decision

The euro traded near $1.145, flirting with its weakest level since July, as investors sought the dollar’s safety amid escalating Middle East tensions and assessed the impact of soaring energy prices on the European Central Bank’s policy path. A 25% surge in European gas prices, following attacks on Qatar’s LNG facilities, and Brent crude at $117/barrel have heightened inflation risks for the Eurozone, prompting markets to increase bets on ECB rate hikes. While the ECB is expected to hold rates steady today, focus will shift to its policy statement and President Christine Lagarde’s press conference for clues on future moves.

The euro fell to $1.15 as investors sought safety in the dollar, driven by escalating Middle East tensions and stronger-than-expected US PPI data ahead of pivotal central bank meetings. On Wednesday, Israel targeted Iran’s Asaluyeh refinery and the South Pars gas field, while Iran’s Revolutionary Guard issued evacuation alerts for oil facilities in Saudi Arabia, the UAE, and Qatar, heightening geopolitical risks. Adding to the pressure, US producer prices surged 0.7% in February, far exceeding the forecasted 0.3%, with the annual rate hitting a one-year high of 3.4%. Market focus now shifts to this week’s ECB and Federal Reserve policy meetings, where interest rates are expected to remain unchanged. ECB President Christine Lagarde is anticipated to outline strategies to protect the Eurozone from inflationary pressures linked to the ongoing conflict.

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.