Euro Little-Changed as Geopolitics and ECB Hike Bets Weigh

The euro traded near $1.17, as investors weighed Middle East tensions, new US tariffs, and rising expectations of an ECB rate hike as soon as June. Oil prices stayed close to four-year highs due to the US-Iran standoff over the Strait of Hormuz. Meanwhile, Trump ordered the withdrawal of 5,000 US troops from Germany, hinting at further cuts, and raised tariffs on EU cars and trucks to 25%, accusing the EU of failing to uphold its trade deal with Washington. Markets now price in over three ECB hikes this year. Though the ECB held rates steady last week, it signaled potential adjustments, citing inflation risks and growth concerns. Officials Joachim Nagel, Madis Müller, and Peter Kazimir hinted at tightening in June, warning of persistent price pressures.

The euro traded near $1.17 in early May as investors assessed Middle East tensions, new US tariffs, and growing expectations of an ECB rate hike as early as June. Oil hit four-year highs after Iran allegedly struck a US warship in the Strait of Hormuz, following Tehran’s warnings that any US interference in the waterway would violate the ceasefire. Separately, Trump ordered the withdrawal of 5,000 troops from Germany, hinting at further reductions, and raised tariffs on EU cars and trucks to 25%, accusing the bloc of failing to honor its trade agreement with Washington. Markets are pricing in an 80% chance of a 25-basis-point ECB rate hike by June, with at least two increases expected this year. The ECB held rates steady last week but left the door open for future adjustments, citing inflation risks and growth concerns. Officials Joachim Nagel, Madis Müller and Peter Kazimir suggested potential tightening in June, warning of persistent price pressures.

The euro traded above $1.17 in early May, recovering from three-week lows, as investors analyzed the European Central Bank’s latest policy decision and a fresh rise in oil prices amid Middle East tensions. The ECB held rates steady but kept options open for June and beyond, noting heightened inflation risks and growth concerns. At the press conference, ECB President Christine Lagarde confirmed the decision to hold rates was unanimous, though a hike had been discussed. Meanwhile, ECB official Joachim Nagel cautioned that the central bank might need to tighten policy as early as June, citing a worsening inflation outlook and the risk of persistent price growth. Fellow official Madis Müller also signaled that rates could require an increase. Market expectations now include three rate hikes in 2026, with the first fully priced in by July. Adding to the upward push, Brent crude prices climbed further after US President Donald Trump maintained the naval blockade of Iranian ports.