Euro skids to six-week trough on the Iranian war

The euro slipped in European trading on Monday to its lowest level in six weeks against the US dollar, as investors focused on buying the dollar as the preferred safe-haven asset amid escalating global geopolitical tensions and intensifying military confrontation between the United States and Israel on one side and Iran on the other.

The single currency is also facing pressure from concerns over rising global energy prices linked to the Iranian conflict, which could complicate the European Union’s efforts to refill fuel storage facilities as inventories remain at record-low levels.

Price Overview

• Euro exchange rate today: The euro declined against the dollar by 0.7% to $1.1737, the lowest level since January 23, down from Friday’s close at $1.1817, while recording an intraday high at $1.1796.

• The euro ended Friday’s session up by about 0.2% against the dollar, marking its second gain in three days as part of a recovery from lower levels.

• During February, the euro lost 0.3% against the dollar, marking its first monthly decline since October, amid renewed expectations for at least one European interest rate cut this year.

The US Dollar

The dollar index jumped حوالي 0.6% on Monday, reaching a six-week high of 98.22 points, reflecting broad-based strength in the US currency against a basket of major and minor currencies.

This rise came as investors increased purchases of the dollar as a preferred alternative investment after the United States and Israel carried out strikes on Iran, which reportedly resulted in the death of Supreme Leader Ayatollah Ali Khamenei, raising the risk of a prolonged military conflict in the Middle East.

The Iranian Conflict

The current war began with surprise military strikes targeting sensitive locations inside Iran, in what has been described as the most serious escalation in years. The United States and Israel launched coordinated attacks on strategic Iranian targets that they said were linked to military and security capabilities, in a move viewed as a major shift in the ongoing confrontation.

Tehran responded quickly by launching waves of missiles targeting American assets and bases across several Gulf countries, expanding the scope of the confrontation and increasing regional risk.

In a highly sensitive development, Iranian Supreme Leader Ali Khamenei was reportedly killed on the first day of the strikes, a development that triggered a major political and security shock both inside and outside Iran and added an unprecedented dimension to the conflict.

Iran declared a state of maximum alert and vowed a broad and painful response, while US and Israeli forces raised their readiness levels in anticipation of further escalation.

Within the first hours of the strikes, partial airspace closures were announced across several countries in the region, accompanied by intensified military movements and fears of a wider regional war.

The military operations were accompanied by strong political messaging, with each side seeking to establish new deterrence dynamics while the international community closely monitors developments that could reshape the balance of power in the Middle East.

Impact of the Iranian Conflict

Analysts at Wells Fargo said in a note that the euro faces a difficult situation. Europe’s natural gas storage refilling season is about to begin, while the European Union is entering the period with record-low inventory levels, meaning it may need to purchase large amounts of energy at a time when prices could rise sharply.

European Interest Rates

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

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

• To reassess those expectations, investors later today will closely monitor comments from European Central Bank President Christine Lagarde.