Euro Gains After ECB Meeting

The euro climbed to $1.15 after the European Central Bank left interest rates unchanged for a sixth straight meeting, keeping the deposit rate at 2% as expected. Policymakers signaled a cautious approach, saying decisions will continue to be taken meeting by meeting. The ECB warned that the war in Iran has increased uncertainty, posing upside risks to inflation and downside risks to economic growth, particularly through higher energy prices in the near term. It reiterated its commitment to bringing inflation back to the 2% target over time. Markets still expect further tightening, with two rate hikes fully priced in this year and a possible third. Other major central banks are also holding steady, with the Bank of England and Bank of Japan keeping rates unchanged after the Federal Reserve paused earlier in the week.

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.