The euro weakened in European trading on Tuesday against a basket of global currencies, extending losses for a second consecutive session against the US dollar and hitting a six-week low, as investors continued to favor the greenback as a safe-haven asset amid escalating geopolitical tensions and intensifying military confrontations between the United States and Israel on one side and Iran on the other.

The single currency is also pressured by concerns over rising global energy prices due to the Iran war, which could hinder the European Union’s ability to replenish fuel reserves as inventories decline to record lows.

Later today, traders await the release of euro area headline inflation data for February, which is expected to provide stronger clues on the European Central Bank’s interest rate path this year.

Price Overview

• EUR/USD fell 0.2% to $1.1662, the lowest level since January 20, down from the session open at $1.1687, after touching a high of $1.1707.

• The euro ended Monday down 1.1% against the dollar, marking its largest daily loss since July 30, 2025, amid fallout from the Iran war.

US Dollar

The US dollar index rose 0.2% on Tuesday, extending gains for a second straight session and reaching a one-and-a-half-month high of 98.77, reflecting continued strong performance of the US currency against a basket of major and minor peers.

The ongoing rally is driven by safe-haven demand as the Iran war enters its fourth day, with mounting fears of a broader regional escalation. Rising energy prices are adding further negative pressure on the global economy.

Developments in the Iran war

• President Donald Trump said the war could last for weeks and that it remains unclear who would take control in Iran following the death of Supreme Leader Ayatollah Ali Khamenei.

• Israeli Prime Minister Benjamin Netanyahu sought to calm concerns over the timeline, telling Fox News it would not be an “endless war.”

• Saudi Arabia’s defense ministry said in a post on X, citing a preliminary assessment, that two drones targeted the US embassy in Riyadh, causing a limited fire and some damage.

European Interest Rates

• Money markets price the probability of a 25-basis-point rate cut by the European Central Bank in March at around 25%.

• Traders have revised expectations from keeping rates unchanged throughout the year to at least one 25-basis-point cut.

Inflation in Europe

To reassess expectations for rate cuts this year, investors will focus later today on euro area headline inflation data for February, which will indicate the extent of inflationary pressures facing ECB policymakers.

At 10:00 GMT, annual euro area CPI is expected to rise 1.7% in February, unchanged from the previous reading, while core inflation is forecast at 2.2%, in line with the prior figure.

Euro outlook

At FX News Today, we expect that if inflation data comes in softer than currently anticipated, expectations for ECB rate cuts this year will increase, implying further downside pressure on the euro in the foreign exchange market.

The Japanese yen weakened in Asian trading on Tuesday against a basket of major and minor currencies, extending losses for a second consecutive session against the US dollar and nearing its lowest level in six weeks, as investors continued to favor the dollar as a preferred safe-haven asset amid escalating concerns over a widening military conflict in the Middle East.

The currency’s decline prompted a warning from Japan’s finance minister about the possibility of intervening in the foreign exchange market to support the yen. Meanwhile, downbeat labor market data reduced the likelihood of a near-term interest rate hike in Japan.

Price Overview

• USD/JPY rose about 0.2% to ¥157.60, up from the day’s opening level of ¥157.35, after touching an intraday low of ¥157.18.

• The yen ended Monday down 0.9% against the dollar, marking its largest daily loss since February 18 and hitting a six-week low of ¥157.75, driven by the intensifying Iran war.

US Dollar

The US dollar index rose more than 0.15% on Tuesday, holding gains for a second straight session and trading near a one-and-a-half-month high, reflecting continued strength in the US currency against a basket of global peers.

The strong performance comes as investors turn to the dollar as a safe-haven asset, with the Iran war entering its fourth day and fears mounting over a broader regional escalation. Rising energy prices are adding further pressure on the global economy.

Developments in the Iran war

• President Donald Trump said the war could last for weeks and that it remains unclear who would take control in Iran following the death of Supreme Leader Ayatollah Ali Khamenei.

• Israeli Prime Minister Benjamin Netanyahu sought to ease concerns over the timeline, telling Fox News it would not be an “endless war.”

• Saudi Arabia’s defense ministry said in a post on X, citing a preliminary assessment, that two drones targeted the US embassy in Riyadh, causing a limited fire and some damage.

Japanese Finance Minister

Finance Minister Satsuki Katayama said financial authorities are closely monitoring markets with a “strong sense of urgency.” When asked about possible currency intervention, she noted that Japan had reached a mutual understanding with the United States last year.

Japanese Interest Rates

• Japan’s unemployment rate rose to 2.7% in January, above market expectations of 2.6%, compared with 2.6% in December.

• Market pricing for a 25-basis-point rate hike by the Bank of Japan in March fell from 15% to 5%.

• Pricing for a similar move in April declined from 40% to 25%.

• In the latest Reuters poll, the Bank of Japan is expected to raise interest rates to 1% by September.

• Analysts at Morgan Stanley and MUFG said in a joint research note that while they had already viewed the probability of a March or April hike as low, rising uncertainty linked to developments in the Middle East is likely to push the Bank of Japan toward a more cautious stance, further reducing the likelihood of near-term tightening.

Investors are awaiting additional data on inflation, unemployment, and wages in Japan to reassess these expectations.

Gold prices rose during Monday’s trading despite a notable advance in the US dollar against most major currencies, as geopolitical fears and the outbreak of war in the Middle East pushed investors toward safe-haven assets.

The US–Israeli strikes resulted in the death of Iran’s Supreme Leader Ayatollah Ali Khamenei, in a development seen as a major turning point for the Islamic Republic and one of the most consequential events since 1979.

In response, Iranian officials vowed a strong retaliation, increasing concerns over a broader regional conflict, especially after explosions were reportedly heard in several cities across Gulf countries.

US President Donald Trump said in an interview with CNBC that American military operations in Iran were progressing ahead of schedule.

Meanwhile, concerns that expanding automation could undermine business models and trigger waves of layoffs continue to raise worries about potential impacts on the broader economy.

Trump also hinted at a “major wave” of additional attacks without revealing details, saying he expected the “Iran operation” to last between four and five weeks and that the US had the capacity to continue “much longer than that.”

The US dollar index rose by 1% to 98.6 points at 20:32 GMT, recording a session high of 98.7 and a low of 97.7.

In trading, spot gold contracts climbed 2% to $5,354.4 per ounce by 20:33 GMT.

The Strait of Hormuz is back in the headlines. Again. Around one-fifth of globally traded oil passes through that narrow waterway between Oman and Iran. And once more, geopolitical tensions in the Middle East have turned this chokepoint into a pressure valve for the entire global economy. Insurance premiums jump. Oil tankers hesitate. Traders hold their breath. Politicians rush to podiums.

And Europe wonders why its energy bills are rising.

There is something deeply frustrating about this moment — not because it is unexpected, but because it is entirely predictable. Over recent years, I have repeatedly written about Europe’s structural vulnerability to fossil fuel imports. Not just to “imports” in general, but to imports that pass through narrow chokepoints controlled, directly or indirectly, by regimes and power structures that do not necessarily share Europe’s political stability, regulatory transparency, or strategic interests. The Strait of Hormuz is not a black swan. It is a recurring character in a story we refuse to end.

Dependence is not fate — it is policy

Europe imports the majority of its oil and gas needs. This reality is often framed as geographic destiny. It is not destiny; it is policy. For decades, short-term cost efficiency was prioritized over long-term resilience. We built an energy system dependent on molecules traveling thousands of kilometers, crossing narrow sea lanes, pipelines running through politically sensitive territories, and contractual relationships that can be reshaped by elections, revolutions, or sanctions.

When those routes shake, our economies shake with them. The latest effective closure or severe disruption of navigation through Hormuz exposes this vulnerability once again. Tankers reroute. Futures markets spike. Governments scramble. And almost immediately, familiar reactions return.

The familiar panic playbook

In the Netherlands, quiet discussions resume about reopening the Groningen gas field. In the North Sea, calls intensify to extend oil and gas exploration. Across Europe, the phrase “energy security” begins to function as a synonym for “drill more.”

Give it a few weeks and someone will inevitably shout “shale gas!” in a Brussels corridor, as if Europe’s geology and public acceptance have suddenly transformed overnight.

We have seen this before. After every crisis — supply disputes, wars, pipeline sabotage — we tend to double down on the very system that created the fragility in the first place.

But let us be honest: even if we extracted every remaining drop from the North Sea and Groningen, Europe would remain structurally dependent on imported oil. If global prices surge because of Hormuz, domestic European production will not magically shield consumers from global pricing dynamics. Oil is globally priced. Gas increasingly is too. We are not only dependent on volumes of supply, but on a pricing system shaped by global instability.

Whims, strongmen, and market volatility

When your energy bill depends on a tanker safely crossing a 33-kilometer-wide strait, you do not have energy sovereignty. You have exposure. Exposure to regional conflicts. Exposure to sanctions regimes. Exposure to leaders whose domestic priorities may not align with European economic stability.

This is not about demonizing any particular country. It is about acknowledging a structural reality: fossil-fuel-importing economies remain vulnerable to geopolitical shocks, especially when supply chains converge at chokepoints.

And yet policymakers often act surprised when chokepoints behave like chokepoints. Why do we keep forgetting this?

Renewables: not just climate policy, but strategy

The discussion must go beyond climate rhetoric. Renewables are not only about emissions; they are about insulation. Wind and solar do not pass through Hormuz.

Electrons do not queue at narrow maritime corridors. A diversified, electrified system based on local generation is structurally less exposed to geopolitical coercion or regional instability.

Of course, renewables require materials, manufacturing, grids, storage, and supply chains. They are not geopolitically neutral. But the nature of their vulnerability is fundamentally different.

Instead of concentrating risk in a handful of maritime corridors and producing regions, renewable systems distribute generation geographically. They shift dependence from continuous fuel imports to upfront infrastructure and material supply chains — chains that can be diversified and strategically managed.

Do not abandon globalization — fix it

This is not an argument for isolationism. Europe cannot, and should not, pursue full self-sufficiency. Global trade remains essential. But we can choose our dependencies more wisely.

Rather than heavy reliance on unstable fossil chokepoints, Europe should accelerate cooperation with rule-based, reliable partners in renewable technologies, critical material processing, hydrogen trade, and clean industrial value chains.

Strengthen ties with neighboring regions rich in solar and wind potential. Develop shared grids. Invest in joint manufacturing. Build strategic reserves of critical materials. Create redundancy. Globalization is not the enemy; unbalanced, single-route dependence is.

The real cost of delay

Each time Hormuz unsettles markets, we pay twice: first through higher prices and economic uncertainty, and second through political panic that pushes us back toward short-term fossil solutions instead of structural change.

Reopening gas fields undermines public trust. Extending exploration licenses locks in infrastructure for decades. Reviving shale fantasies distracts from scalable solutions. And through it all, the underlying vulnerability remains untouched.

The energy transition is often portrayed as costly and disruptive. But what is the cost of recurring geopolitical exposure? What is the cost of industrial planning built on volatile inputs? What is the cost of strategic fragility? Resilience has a price. Dependence has one too.

This crisis is not a surprise — it is a reminder

The Strait of Hormuz is doing what it has always done: reminding us that fossil fuel dependence is not just an environmental issue, but a geopolitical liability. We cannot claim we did not see this coming. We have seen it repeatedly in shipping disruptions, pipeline disputes, sanctions regimes, and regional conflicts.

The only surprising thing is how quickly we forget.

If Europe wants genuine energy security, it must accelerate electrification, renewables, storage, grid expansion, and domestic industrial capacity. It must build resilient supply chains with trusted partners. It must reduce exposure to volatile fossil chokepoints, not merely manage them slightly better.

Every crisis tests whether we learned from the last one.

Hormuz is testing us again. The question is simple: will we finally treat renewable acceleration as a strategic necessity rather than just a climate ambition?

Or will we wait for the next closure to remember, once again, too late?