The euro fell in European trading on Tuesday against a basket of global currencies, retreating from a two-week high against the US dollar amid corrective activity and profit-taking, as demand returned for the US currency as a preferred safe-haven asset, especially after the United States and Israel launched airstrikes on Iranian energy infrastructure.

Targeting Iranian energy facilities has significantly complicated the diplomatic landscape, as observers believe these strikes undermine already fragile “bridges of trust” and make it difficult for Tehran to return to the negotiating table under direct military pressure.

To assess the impact of the Iran war and rising energy prices on economic activity in Europe, markets are awaiting the release of key data on the main industrial and services sectors for March later today.

Price Overview

Euro exchange rate today: the euro fell 0.3% against the dollar to $1.1576, down from the session opening level of $1.1612, after reaching a high of $1.1618.

The euro ended Monday’s session up 0.35% against the dollar, hitting a two-week high of $1.1640 after Donald Trump announced talks with Iran and delayed any military strikes on Iranian energy facilities for five days.

US dollar

The dollar index rose on Tuesday, beginning to recover from a two-week low, reflecting a renewed rise in the US currency against a basket of global currencies.

The index fell on Monday to its lowest level in two weeks after US President Donald Trump postponed strikes on Iran’s electricity grid, a move that eased concerns about a prolonged war in the Middle East.

Trump wrote on his Truth Social platform that the United States and Iran had held “very good and productive talks” on a “comprehensive and final resolution” to hostilities in the Middle East.

Trump added: I have instructed the Department of War to delay all military strikes on Iranian energy facilities and infrastructure for five days.

According to Iranian news agencies, Iranian officials denied holding any talks with the United States, with some describing such reports as false and aimed only at calming markets.

Contrary to expectations, US and Israeli air forces launched intense strikes on some energy facilities in Iran on Tuesday, a move likely to escalate military confrontations and prompt Iran’s Revolutionary Guard to carry out missile attacks on energy facilities in Israel and Gulf countries.

European interest rates

The European Central Bank kept interest rates unchanged last week for the sixth consecutive meeting.

Sources told Reuters that the European Central Bank is likely to begin discussing interest rate hikes next month.

Following the meeting, money markets increased pricing for a 25-basis-point rate hike by the European Central Bank at the April meeting from 1% to 25%.

To reassess these expectations, investors are awaiting the release of key data on the main sectors of the European economy for March later today.

The Japanese yen fell in Asian trading on Tuesday against a basket of major and minor currencies, resuming its losses against the US dollar as demand returned for the US currency as a preferred safe-haven asset, especially after the United States and Israel launched airstrikes on Iranian energy infrastructure.

Targeting Iranian energy facilities has significantly complicated the diplomatic landscape, as observers believe these strikes undermine already fragile “bridges of trust” and make it difficult for Tehran to return to the negotiating table under direct military pressure.

The yen is also under pressure from data showing a slowdown in core inflation in Japan in February, indicating easing inflationary pressures on Bank of Japan policymakers and reducing the likelihood of a rate hike in April.

Price Overview

Japanese yen exchange rate today: the US dollar rose 0.25% against the yen to ¥158.79, up from the session opening level of ¥158.41, with a session low of ¥158.26.

The yen ended Monday’s session up 0.5% against the dollar, benefiting from a decline in the US currency after Donald Trump announced talks with Iran and delayed any military strikes on Iranian energy facilities for five days.

US dollar

The dollar index rose on Tuesday, beginning to recover from a two-week low, reflecting a renewed rise in the US currency against a basket of global currencies.

The index fell on Monday to its lowest level in two weeks after US President Donald Trump postponed strikes on Iran’s electricity grid, a move that eased concerns about a prolonged war in the Middle East.

Trump wrote on his Truth Social platform that the United States and Iran had held “very good and productive talks” on a “comprehensive and final resolution” to hostilities in the Middle East.

Trump added: I have instructed the Department of War to delay all military strikes on Iranian energy facilities and infrastructure for five days.

According to Iranian news agencies, Iranian officials denied holding any talks with the United States, with some describing such reports as false and aimed only at calming markets.

Contrary to expectations, US and Israeli air forces launched intense strikes on some energy facilities in Iran on Tuesday, a move likely to escalate military confrontations and prompt Iran’s Revolutionary Guard to carry out missile attacks on energy facilities in Israel and Gulf countries.

Core inflation

Data released in Tokyo on Tuesday showed Japan’s core consumer price index rose 1.6% in February, the slowest pace since March 2022, below market expectations of a 1.7% increase, after rising 2.0% in January.

These figures confirm the continued easing of inflationary pressures on Bank of Japan policymakers, reducing the likelihood of interest rate hikes in the first half of the year.

Japanese interest rates

Following the above data, markets reduced pricing for the probability of a quarter-point rate hike by the Bank of Japan at the April meeting from 30% to 15%.

To reassess these expectations, investors are awaiting further data on inflation, unemployment, and wages in Japan.

The Canadian dollar rose slightly against its US counterpart on Monday, as recent pessimism over the outlook for the Middle East war eased, allowing it to recover part of its losses after hitting a two-month low earlier in the session.

The Canadian currency, known as the “loonie,” was trading up 0.1% at 1.3715 per US dollar, or 72.91 US cents, after touching an intraday low of 1.3754, the weakest level since January 23.

Erik Bregar, Director of FX and Precious Metals Risk Management at Silver Gold Bull, said: “Markets have seen significant swings in broader risk sentiment. The Canadian dollar is behaving somewhat more steadily… and is not showing the same level of volatility we see in metals, equities, or bonds.”

The US dollar, considered a safe-haven asset, weakened against a basket of major currencies, while equities rose after US President Donald Trump announced he would delay strikes on Iranian energy infrastructure following talks described as “productive” between the two sides.

Oil prices — one of Canada’s key exports — also declined by 10.3% to $88.13 per barrel, easing some concerns that rising inflation could lead to tighter global monetary policy.

Money markets are currently pricing at least two interest rate hikes by the Bank of Canada this year, after expectations had previously leaned toward keeping policy unchanged before the outbreak of the conflict.

Bregar said: “The short end of the yield curve is overreacting. I don’t think any central bank will respond hastily to price increases lasting only one or two months.”

Data from the US Commodity Futures Trading Commission (CFTC) showed that speculators reduced their bullish bets on the Canadian dollar, with net non-commercial long positions falling to 886 contracts as of March 17, compared with 36,159 contracts in the previous week.

Canadian government bond yields declined across the curve, with the two-year yield falling by 14 basis points to 2.927%, after having reached its highest level since November 2024 at 3.212%.

While most people see the importance of preventing Iran from developing nuclear weapons, many may now view US President Donald Trump’s plan to achieve that as resembling the famous “South Park gnomes” plan for profiting from stealing underwear, which went as follows: “Phase one: collect underwear, phase two: ?, phase three: profit.” Trump’s version, it seems, was: “Phase one: kill the Supreme Leader, phase two: ?, phase three: Iran will never develop nuclear weapons.”

Puzzlingly, not only to participants in energy markets, Trump appears to have ignored Iran’s long-standing threat that if it were subjected to a severe external attack, it could — and would — close the Strait of Hormuz, through which as much as one-third of the world’s oil and about one-fifth of liquefied natural gas passes. The stated objective of that would be to drive oil and gas prices sharply higher, causing major economic damage to the largest energy importers. That plan, unlike the South Park gnomes’ plan or Trump’s plan, appears to be working very well.

Who is really benefiting from this ongoing conflict in Iran?

“Putin is laughing now,” a senior source in Washington working closely with the current US administration told OilPrice.com last week. “Just when he thought the game was over in Ukraine, it has become like Christmas all over again in the Kremlin.”

To begin with, with the United States lifting sanctions on Russian oil, industry estimates indicate that Russia is earning as much as $150 million in additional weekly revenue from those exports. India moved fastest, buying as many as 30 million barrels almost immediately, roughly equivalent to all Russian cargoes available in Asian waters.

What is striking here is that Washington spent the entirety of Trump’s second term working through every possible channel to prevent India from continuing to import Russian oil, on the grounds that it constituted a key source of funding for the Kremlin’s war in Ukraine. Last week, the United States’ long-standing core ally in the Asia-Pacific region — Japan — also emphasized how important access to Russian oil is amid the growing chaos in the Middle East.

Japan’s Minister of Economy, Trade and Industry, Ryosei Akazawa, said: “Securing crude oil from overseas, including Russian oil, is vital to our country’s energy security.” Like many countries, Japan has become increasingly dependent on Middle Eastern oil since Russia’s invasion of Ukraine in 2022, to the point that the region accounted for 94% of its oil imports last year, with 93% of those volumes passing through the Strait of Hormuz.

Although the exemptions for Russian oil have now been extended to all countries, they remain valid for only 30 days and are limited to oil already at sea. Nevertheless, with energy prices continuing to rise, the chances of extending that period and broadening the range of covered supplies appear to be increasing. The same may also apply to the new — and perhaps more surprising — exemptions related to Iranian oil already at sea.

It is not only about money for Russia

Russia is also benefiting from the large volume of weapons and ammunition being used by the United States in Iran, which will affect the quantity and range of weapons that Europe can later purchase and transfer to Ukraine to support it in its war against Russia.

According to the Washington source, citing figures from the US Department of Defense, the cost of the war for the United States exceeded $11 billion in the first week alone from February 28. As of now, according to the same sources, the cost of weapons and ammunition alone — excluding other expenses such as medical costs or the replacement of lost military aircraft — has exceeded $18 billion.

More important for Ukraine and Europe — which are preparing for the possibility of a greater Russian advance westward if Moscow takes control of Ukraine — is the type of weapons being used, as they will not be available for purchase through the US Foreign Military Sales program, under which Europe pays the US government, which in turn buys the weapons from US defense companies and then transfers them to Ukraine.

According to the Washington source and a senior source within the European Union security apparatus, the scale and type of US weapons being used in Iran are “staggering.” This includes Tomahawk cruise missiles, each costing about $3.6 million and taking a long time to replace, something senior US Navy planners said “will be felt for years.”

Large numbers of Patriot interceptor missiles have also been used to counter Iranian ballistic missiles, even though each missile costs millions of dollars and they are already in critically short supply for Ukraine. THAAD system missiles have also been used extensively, with each one costing between $11 million and $24 million, alongside the destruction of several associated radar systems in Iranian strikes in the Gulf.

Hundreds of precision-guided air munitions have also been used, such as JDAM bombs and JASSM missiles, precisely the categories that Ukraine has been urgently requesting. All of this represents not only a financial drain, but also a major depletion of the military systems that Europe depends on purchasing and transferring to Ukraine.

An escalation that could worsen further

So far, these pressures on the United States and its allies do not appear likely to ease anytime soon — and may intensify further. Iran-backed Houthis have not yet been asked to fully shut down the Bab el-Mandeb Strait, a vital route through which between 10% and 15% of global seaborne oil shipments pass.

This waterway, 16 miles wide, lies between the western coast of Yemen on one side and the eastern coasts of Djibouti and then Eritrea on the other, before connecting to the Red Sea, which also includes Saudi Arabia’s Yanbu oil port.

Saudi Arabia has used this route to bypass the Strait of Hormuz and reduce the impact of any Iranian blockade, increasing exports through the East-West pipeline to Yanbu from an average of 1.7 million barrels per day in 2025 to a record 5.9 million barrels per day in March, with plans to raise that to 7 million barrels per day soon.

With this escalation, and other options available to Iran, oil and gas prices could rise to levels far above current emergency scenarios, as a detailed analysis by OilPrice.com indicated.