Euro Tries to Recover as Trump Delays Iran Strikes

The euro pared early losses to trade at $1.155 after President Trump announced a five-day delay in planned US strikes on Iran’s energy infrastructure, calling recent talks "very good and productive" in a Truth Social post. The move temporarily eased fears ahead of today’s 48-hour US deadline for Iran to reopen the Strait of Hormuz, a flashpoint after Trump’s weekend threat of retaliatory strikes if Tehran failed to comply. Meanwhile, Iran’s state-run Fars News Agency, citing sources, denied any direct or indirect negotiations with the US. On the monetary policy front, markets still anticipate three ECB rate hikes in 2026, following last week’s decision to hold rates while raising inflation forecasts and cutting growth outlook amid escalating Middle East risks.

The euro extended its decline to $1.15, close to its weakest level since July 2025, as investors sought safety in the US dollar amid escalating Iran conflict risks. A 48-hour US deadline for Iran to reopen the Strait of Hormuz expires today, with President Trump threatening strikes on Iranian power plants if Tehran fails to comply. Iran has vowed retaliatory attacks on Gulf energy and desalination facilities, raising fears of a broader regional escalation. Against this backdrop, traders intensified bets on ECB tightening, now pricing in at least three rate hikes in 2026. The central bank held rates steady last week but raised inflation forecasts and cut growth projections, citing mounting risks from the Middle East crisis. Joachim Nagel hinted at a potential April rate hike if inflation pressures worsen, while Francois Villeroy de Galhau reaffirmed the ECB’s commitment to act decisively.

The euro retreated to $1.156 by the close of a volatile week, as investors flocked to the US dollar amid deepening inflation fears tied to the Iran conflict’s energy shock. Brent crude surged back to multi-year highs following attacks on Middle East refineries, while reports suggested the Trump administration may target Iran’s Kharg Island. Against this backdrop, traders ramped up bets on ECB tightening, with money markets now pricing in at least two rate hikes in 2026 and a potential third. The central bank held rates steady on Thursday but raised its inflation outlook while cutting growth forecasts, citing escalating risks from the Middle East crisis. ECB policymaker Joachim Nagel signaled a possible rate rise as soon as next month if price pressures persist, while Francois Villeroy de Galhau underscored the bank’s readiness to take decisive action.