Euro Down to 3-Week Low

The euro fell below $1.17, hitting a three-week low, as a stronger dollar followed a more hawkish-than-expected Fed policy decision. At the same time, rising oil prices added to pressure on the currency and reinforced safe-haven demand for the dollar. The Fed left the federal funds rate unchanged, as expected, but the decision was not unanimous, with three members dissenting over language suggesting the central bank could eventually resume rate cuts. Meanwhile, the ECB is expected to hold rates steady on Thursday, although markets are fully pricing in three quarter-point hikes in 2026 amid inflationary pressures stemming from the oil shock following the conflict with Iran. Preliminary data from Germany showed EU-harmonised inflation rose for a second straight month to 2.9%, the highest since January 2024. In Spain, the harmonised rate also accelerated to 3.5%, the highest since June 2024.

The euro hovered near $1.17, its lowest level in two weeks, as investors digested fresh flash inflation data, awaited key central bank decisions, and monitored developments in the Middle East. Regional German CPI figures pointed to mounting inflationary pressures in April, while Spain’s EU-harmonized inflation rate rose to 3.5%, the highest since June 2024. On monetary policy, the ECB is expected to keep rates unchanged this week, though markets are fully pricing in three quarter-point rate hikes in 2026. The Fed is also expected to leave rates unchanged today. However, the incoming Fed Chair, set to take the helm in May, is seen as unlikely to pursue further tightening and may face pressure from the White House to consider rate cuts. Meanwhile, US President Trump has reportedly directed aides to prepare for a prolonged naval blockade in the Strait of Hormuz, aiming to increase economic pressure on Iran, according to the Wall Street Journal.

The euro hovered around $1.17, close to last week’s two-week lows, as investors grappled with the fallout from stalled US-Iran negotiations and braced for a wave of pivotal economic data. This week’s releases include Eurozone inflation and GDP figures, alongside key global interest rate decisions. Market caution intensified after the European Central Bank reported a sharp rise in inflation expectations for March, compounded by reports that US President Donald Trump rejected Iran’s proposal to postpone nuclear negotiations until the conflict and shipping disputes are resolved. On the monetary policy front, the ECB is expected to hold rates steady at its Thursday meeting, adopting a cautious stance amid the Middle East crisis. However, further tightening remains on the table, with markets anticipating at least two quarter-point rate hikes in 2026.