Euro Steady as Trump’s Iran Threats Fuel Market Uncertainty

The euro remained stable against the dollar on Tuesday, hovering around $1.154, as European investors returned from the Easter break to assess the escalating Middle East conflict. US President Trump intensified threats against Iran, warning that the Strait of Hormuz must reopen by today’s deadline, or face devastating US strikes, including targeting bridges and power plants. Meanwhile, Iran has continued to block liquefied natural gas (LNG) tankers from passing through the strait, deepening a global fuel shortage. The resulting surge in energy prices has reinforced expectations of tighter monetary policy, with markets now pricing in three European Central Bank interest rate hikes this year. On Monday, ECB Governing Council member Pierre Wunsch told the Wall Street Journal that the bank may raise rates multiple times, starting as early as this month, if the Middle East-driven energy crisis lingers.

The euro held steady at $1.152 in subdued trading, amid escalating uncertainty over the prolonged Iran conflict and rising oil prices, while stronger-than-expected US jobs data last week further diminished hopes of Federal Reserve interest rate cuts. US President Trump threatened Iran with severe consequences if it fails to reopen the Strait of Hormuz by Tuesday, though US intelligence suggests compliance is unlikely. Reports also indicate negotiations for a 45-day truce between the US, Iran, and regional mediators, potentially easing the conflict. Crude prices remained near multi-year highs, fueling inflation concerns and prompting investors to rule out any Fed rate cuts this year. In Europe, market expectations have shifted dramatically, with investors now anticipating three interest rate hikes in 2026, a stark contrast to pre-conflict forecasts, which had leaned toward no hikes and even speculation about potential monetary easing.

The euro retreated toward $1.15 as investor caution returned following President Donald Trump’s prime-time address, which offered no clear timeline for resolving the Middle East conflict. While Trump stated that the US operation was nearing completion, he also vowed more aggressive measures, including possible strikes on electrical plants, over the next two to three weeks. The absence of new justifications for the war further dampened market confidence. Amid persistent uncertainty and growing inflation fears, markets are revisiting expectations for the European Central Bank’s policy direction. Investors now foresee three interest rate hikes in 2026, an increase from the two anticipated just yesterday. Before the conflict, expectations had leaned toward no hikes at all, with some even speculating about potential monetary easing.