The Euro edged higher in the European market on Friday against a basket of global currencies, maintaining its gains for the second consecutive day against the U.S. dollar. This follows the European Central Bank’s monetary policy meeting, during which the bank warned of rising inflation risks stemming from the repercussions of the Iran war.

ECB President Christine Lagarde stated that the option of raising interest rates was discussed extensively, noting that the upcoming meeting in June will be the "appropriate time" to re-evaluate the path of monetary policy.

Price Overview

*  Euro Exchange Rate Today: The Euro rose against the dollar by less than 0.1% to ($1.1737), from an opening price of ($1.1731), after recording a session low of ($1.1725).

*   The Euro ended Thursday's trading up 0.45% against the dollar, marking its first gain in three days. This recovery followed a dip to a three-week low of 1.1655 dollars earlier in the session.

*   Throughout April, the Euro achieved a 1.55% gain against the dollar, its first monthly advance in three months. This rise was supported by temporary pauses in the Iran conflict and growing hopes for a permanent peace agreement in the Middle East.

The European Central Bank

In line with expectations, the ECB kept its key interest rates unchanged yesterday at 2.15%—the lowest level since October 2022—marking the seventh consecutive meeting without a change.

In its policy statement, the ECB highlighted elevated inflation risks and an increasing likelihood of an economic slowdown. These pressures are attributed to high energy prices resulting from the war with Iran and ongoing tensions in the Strait of Hormuz.

The bank emphasized that it remains data-dependent and will decide on a meeting-by-meeting basis without committing to a specific rate path, standing ready to adjust all tools to ensure inflation stabilizes at the 2% medium-term target.

Christine Lagarde

ECB President Christine Lagarde stated on Thursday that the Governing Council reached a unanimous decision to hold rates, despite a lengthy discussion regarding the "option to hike." She indicated that June will be the "appropriate time" to reassess the direction of monetary policy.

European Interest Rates

*   Following the meeting, money market pricing for a 25-basis-point rate hike by the ECB in June rose from 35% to 55%.

*   To refine these expectations, investors are awaiting further Eurozone economic data concerning inflation, unemployment, and wage levels.

The Japanese yen declined in the Asian market on Thursday against a basket of major and minor currencies, retreating from a two-year high against the U.S. dollar. This drop is attributed to correction and profit-taking activities, alongside data showing a slowdown in Tokyo's core inflation, which missed April expectations.

Despite the current retreat, the Japanese currency is on track to achieve its largest weekly gain since February, supported by the Bank of Japan's actual intervention in the foreign exchange market to bolster the local currency and curb excessive volatility.

Price Overview

*  Japanese Yen Exchange Rate Today: The dollar rose against the yen by approximately 0.5% to (157.33¥), from an opening price of (156.59¥), after hitting a session low of (156.51¥).

*   The yen ended Thursday’s trading up 2.4% against the dollar, marking its first daily gain in three days and its largest single-day advance since January 23, 2023. It touched a two-month high of 155.54 yen following the BoJ's intervention.

*   Earlier on Thursday, the yen had slumped to 160.72 per dollar, its lowest level since July 2024.

*   Thanks to official intervention, the yen ended April up 1.35% against the dollar, recording its first monthly gain in three months.

Tokyo Core Inflation

Data released today in Japan showed that the Tokyo Core Consumer Price Index (CPI) rose by 1.5% in April, lower than market expectations of 1.8% and down from the 1.7% recorded in March. 

Lower-than-expected price data indicates receding inflationary pressures on monetary policymakers at the central bank, thereby reducing the chances of Japanese interest rate hikes later this year.

Japanese Interest Rates

*   Following the inflation data, market pricing for a quarter-point rate hike by the BoJ at the June meeting fell from 75% to 65%.

*   Investors are awaiting further data on inflation, unemployment, and wages to refine these expectations.

*   BoJ Governor Kazuo Ueda stated this week that there is no immediate need to raise interest rates.

*   On Tuesday, the BoJ kept interest rates unchanged for the third consecutive meeting, warning of escalating inflationary pressures due to the repercussions of the war with Iran and high energy prices.

*   The vote to hold rates passed 6 to 3, with three members calling for a 25-basis-point hike to the 1.0% range.

Weekly Trading

Throughout this week's trading, which officially concludes with today’s price settlement, the yen is currently up approximately 1.25% against the U.S. dollar. It is poised for its fourth weekly gain in five weeks and its largest weekly advance since last February.

Japanese Authorities

Japan's top currency diplomat, Atsushi Mimura, stated on Friday that speculation remains widespread, issuing an explicit warning that Tokyo is ready to return to the markets just hours after its previous intervention. When asked about potential future moves, Mimura told reporters: "I will not comment on what we will do in the future. But I assure you that the Golden Week holiday in Japan has only just begun."

Mimura's remarks followed Finance Minister Satsuki Katayama’s warning on Thursday that the time for "decisive action" was approaching. She also urged journalists to keep their smartphones close throughout the holidays—a clear signal of Tokyo's readiness to deter speculators from exploiting thin liquidity to pressure the yen. Following her warning, the yen surged up to 3%, with sources telling Reuters that the BoJ indeed intervened in the market for the first time in nearly two years.

Oil prices retreated on Thursday shortly after Brent crude hit a four-year high, following reports that the U.S. military will brief President Donald Trump on potential military action against Iran.

Axios reported that U.S. Central Command is preparing to present Trump with plans for potential military action, citing two sources familiar with the matter. This comes after Trump reportedly rejected Tehran’s proposal to reopen the Strait of Hormuz, signaling that the naval blockade will persist until a broader nuclear deal is reached.

Global benchmark Brent crude futures fell 3.2% to $114.22 per barrel by 9:53 a.m. ET, after jumping to $126 earlier in the session—a wartime high. Meanwhile, U.S. West Texas Intermediate (WTI) futures dropped 1.4% to $105.38.

These movements follow a multi-day rally, with both Brent and WTI surging nearly 60% since the outbreak of the U.S. and Israeli-led war against Iran on February 28.

Warren Patterson, head of commodities strategy at ING, noted in a research memo: “The oil market has shifted from over-optimism to the reality of the supply disruptions we are seeing in the Persian Gulf.” He added: “The longer these disruptions last, the less the market can rely on inventories, and the greater the need for demand destruction. The only way to achieve that is through higher oil prices.”

Goldman Sachs estimated that oil exports through the Strait of Hormuz have dropped to approximately 4% of normal levels amid stalled negotiations and the ongoing U.S. blockade. Analysts at the bank noted that Iran’s limited exports and storage capacity could exacerbate supply disruptions if the blockade persists, adding that increased production from the UAE following its OPEC exit would likely be gradual and insufficient to offset current market tightness.

Trump issues new threat to Iran

Trump appeared to issue a fresh threat to Iran in a post on Truth Social, stating the country "better get smart soon."

He added: "Iran can’t get its act together. They don't know how to sign a non-nuclear deal. They better get smart soon!" The post was accompanied by an AI-generated image showing him holding a weapon with explosions in the background and the caption "No more Mr. Nice Guy."

Bill Perkins, Chief Investment Officer at Skylar Capital Management, said oil markets are being driven by a mix of physical disruptions, geopolitics, and investor psychology as traders closely monitor tanker movements and political signals. “We are some ways off from a deal, and it may take more time or further escalation to open the Strait of Hormuz,” he said.

While strategic reserves and oil-in-transit have helped cap price increases, Perkins noted that refined product markets are under greater pressure, with diesel prices soaring and logistical bottlenecks expected to persist even if a ceasefire is reached.

Goldman Sachs also pointed to downside risks to demand, explaining that global oil consumption in April could be about 3.6 million barrels per day lower than February levels, with weakness concentrated in jet fuel and petrochemical feedstocks.

Regarding the outlook, Perkins stated that oil prices could rise to between $140 and $150 per barrel if disruptions continue, though such high levels would eventually curb demand.

Iran has been under intense pressure following weeks of U.S. and Israeli airstrikes, sanctions, and restrictions, but geological factors may ultimately be what forces Tehran to make concessions in its ongoing standoff with the United States.

As the U.S. naval blockade of Iran nears the end of its third week, shipping data and industry monitors indicate that tankers have been unable to move Iranian crude through the Strait of Hormuz toward Asian markets.

This means Iran’s oil storage capacity is filling up rapidly, and time is running out before Tehran is forced to shut in production. Analysts believe this poses a significant problem for Iran as it attempts to withstand U.S. pressure to enter peace negotiations.

“Geological Impact”

Stephen Innes, managing partner at SPI Asset Management, an FX and commodities consultancy, said this situation “is creating a geological impact more than anything else, relating to how the oil is extracted.”

He added that once the valves are closed, “the oil tends to settle at the bottom of the reservoir; it becomes viscous and dense, requiring a lot of energy to bring it back to the surface.”

He noted that the result could lead to the “endgame” for the sector.

“Rebuilding pressure within the reservoirs and resuming oil flow could take an entire year... many believe that production might stop permanently because the cost of restarting it would be too high,” he explained.

A research report issued by Goldman Sachs on April 23 stated that “the share of low-pressure reservoir production is higher in Iran and Iraq compared to the rest of the Gulf states.”

The report, which covered oil sectors across all Arabian Gulf countries, indicated that restoring production levels “might only be partial after a long shutdown.”

For his part, Mehdi Moslehi, a UK-based Iranian risk consultant who has worked in the oil sector for a decade, said the duration of the extraction halt is a decisive factor.

“If production is stopped for a short period—between one, two, or three weeks maximum—the wells can be restarted,” he said. “But if the closure continues for a long time—especially since wells in southern Iran often contain high percentages of sulfur—serious problems could arise, and reservoir pressure may drop.”

A race against time?

Of course, Iran may not be forced to stop production, but data released this week suggests the situation has become a race against time.

In a report issued on April 27, shipping and commodities analytics firm Kpler said that “no confirmed tankers have left the U.S. blockade zone” since its implementation began on April 13.

The report added that “several tankers passed through the Strait of Hormuz but failed to bypass the U.S. blockade, which is stationed further south between the Gulf of Oman and the Arabian Sea.”

This explains why Iranian oil inventories are reaching capacity; Kpler estimated that Iran has only about 12 days of remaining storage capacity.

Analyst Homayoun Falakshahi said: “Previously, it could be said that time was on the Islamic Republic’s side, but that is no longer the case... the rules of the game have become more balanced.”

Meanwhile, Iran’s own blockade of the Strait of Hormuz—which prevents oil exports from other Gulf nations—is adding further pressure, driving up oil prices and causing global supply shocks, not only for oil but also for gas and other vital commodities.

As the situation persists, pressure on the global economy increases.

“We are now facing a game of endurance to see which party will blink first in the short term,” Falakshahi said. “Prices between 100 and 110 dollars, or even 120 dollars per barrel, are still manageable for the global economy. But if the Strait of Hormuz remains closed over the coming days or weeks, prices are likely to rise even further.”

On April 29, Brent crude rose sharply to 115 dollars per barrel following a report by the Wall Street Journal stating that U.S. President Donald Trump asked aides to prepare for an “extended blockade.”

In the meantime, Iran is seeking other ways to ease storage pressures, including transporting oil by rail to China, its largest customer. However, this method is more expensive and handles much smaller volumes than tankers, limiting its impact.

Iran’s next move could be escalation.

Other countries in the Arabian Gulf have managed to ease storage pressures by using alternative routes, such as the Saudi East-West pipeline to the Red Sea, which has helped keep oil flowing.

Iran may resort to mobilizing its Houthi allies in Yemen to attack this route by targeting shipping in the Bab el-Mandeb Strait, through which approximately 10% of global maritime oil trade passes.

However, this option carries risks for Tehran, as the United States has bolstered its military presence in the region in recent weeks and signaled the possibility of resuming hostilities.

Innes concluded: “The prevailing market estimate is that some kind of deal will be reached within the next two or three weeks.”