Euro Rises to $1.17 as ECB Leaves Options Open

The euro edged up to $1.17, recovering from three-month lows and heading for a monthly gain of over 1% against the dollar, after the ECB held interest rates as expected but left all options open for its June meeting and beyond. Policymakers noted that while recent data aligned with their inflation outlook, upside risks to inflation and downside risks to growth have intensified. At the press conference, ECB President Christine Lagarde said the hold was unanimous, though a hike was debated, and policymakers agreed they are "moving away" from the baseline scenario. Money markets anticipate around 75 basis points of hikes by year-end. On the data front, Eurozone inflation rose to 3% in April, the highest since September 2023 and well above the ECB’s 2% target. Meanwhile, the bloc’s economy unexpectedly slowed in Q1, growing just 0.1%, as the Middle East conflict disrupted energy supplies.

The euro held below $1.17, its weakest since April 8, as investors awaited the European Central Bank’s policy decision and digested fresh economic data, including Eurozone preliminary GDP and inflation figures. Brent crude’s rally to four-year highs, spurred by reports of potential US military action in Iran, heightened inflation concerns ahead of the meeting. The ECB is expected to keep rates unchanged on Thursday, yet markets are pricing in three quarter-point hikes in 2026 due to inflationary pressures from the oil shock tied to the Iran conflict. Data from Europe’s largest economies showed inflation accelerating in April, driven by soaring energy prices. This comes after the Federal Reserve’s decision to hold rates, though its meeting exposed deepening divisions, with four officials dissenting for the first time since October 1992, three of whom opposed the Fed’s signal of eventual rate cuts.

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.