Euro extends losses to two-week low as US-Iran tensions flare again

The euro fell against a basket of major currencies in European trading on Wednesday, extending losses against the US dollar for a second consecutive day and hitting a two-week low as renewed military tensions between the United States and Iran continued to support the US currency and push oil prices higher, alongside another jump in US Treasury yields.

European inflation data came largely in line with expectations, keeping alive the possibility of a European Central Bank interest rate hike in September, while investors await further key economic data from the eurozone.

The Price

• Euro today: The euro fell around 0.2% against the US dollar to $1.1574, its lowest level since August 19, from an opening level of $1.1593, after recording a session high of $1.1596.

• The euro ended Tuesday down 0.2% against the dollar, marking its second loss in three days, pressured by renewed tensions around the Strait of Hormuz and rising US Treasury yields.

US dollar

The US dollar index rose 0.2% on Wednesday, extending gains for a second consecutive session and reaching a two-week high of 99.81, reflecting continued strength in the US currency against a basket of major and secondary currencies.

The dollar’s advance has been supported by safe-haven demand amid renewed military tensions in the Middle East, as well as the continued rise in US Treasury yields.

Global oil prices

Oil prices rose more than 1% on Wednesday, extending gains for a third consecutive session and reaching six-week highs amid concerns over oil flows through the Strait of Hormuz.

US Treasury yields

The yield on the 10-year US Treasury note rose more than 0.3%, extending gains for a sixth consecutive session and reaching a three-year high of 4.812%, providing further support for the US dollar.

Latest developments in the Iran war

• Developments have become increasingly serious, with the Iran war seeing an exchange of military strikes between the United States and Iran.

• The US military launched a new wave of strikes on Iran, targeting Islamic Revolutionary Guard Corps positions, air-defense facilities, radar sites and naval assets linked to threats against shipping in the Strait of Hormuz.

• Iran responded with missile and drone attacks on US positions across the region, including bases in Jordan, Bahrain and Kuwait, with Jordan saying it intercepted most of the missiles.

• Tehran threatened to tighten restrictions on shipping through the Strait of Hormuz, while field reports indicate that vessel traffic has fallen sharply.

• Only five vessels crossed the strait on Monday, according to preliminary Kpler data, with no large oil or liquefied natural gas tankers detected.

• US President Donald Trump said the United States is not forcing Iran to negotiate following the latest round of military strikes.

• The Islamic Revolutionary Guard Corps warned the United States of “consequences” for the latest attacks, while Iran’s Supreme Leader said Tehran would respond to Washington.

European interest rates

• Key European inflation data for August showed headline consumer price inflation rising to 3.3% from 2.9% in July, in line with market expectations, while core inflation eased to 2.4% from 2.5%.

• Following the data, money markets continued to price in around a 75% probability that the European Central Bank will raise interest rates by 25 basis points in September.

• Investors are awaiting further eurozone economic data on growth, unemployment and wages to reassess those expectations.

Euro outlook

We expect the euro to remain under pressure against the US dollar, with the potential to hit fresh multi-week lows, particularly if military tensions between the United States and Iran persist.