Euro under pressure after US strikes on Iranian sites

The euro declined in European trading on Tuesday against a basket of global currencies, resuming its losses that were temporarily halted yesterday against the US dollar, and moving lower toward its weakest levels in six weeks, under negative pressure after the United States launched defensive attacks on Iranian boats and missile sites.

Following media reports, the probability of the European Central Bank raising interest rates at its next June meeting increased. Investors are awaiting further economic data from the eurozone in order to reassess those expectations.

Price Overview

• Euro exchange rate today: The euro fell against the dollar by 0.1% to $1.1630, from today’s opening level at $1.1640, and recorded a high of $1.1643.

• The euro ended Monday’s trading up around 0.35% against the dollar, marking its first gain in the past three sessions, as part of recovery attempts from a six-week low at $1.1576.

• Aside from buying activity from lower levels, the euro recovered amid optimism that the United States and Iran may be nearing a peace agreement to end the war in the Middle East.

US dollar

The dollar index rose 0.1% on Tuesday, resuming gains that had paused in the previous session, and moving once again toward its highest level in six weeks, reflecting the rise of the US currency against a basket of global currencies.

Demand for the dollar as a safe haven resumed after new US attacks on Iran increased doubts over the possibility of reaching an agreement to reopen the vital Strait of Hormuz and end the three-month-long Iranian war.

Global oil prices

Global oil prices rebounded by more than 2% on Tuesday, beginning to recover from five-week lows, amid renewed fears that the Strait of Hormuz could remain closed to oil tankers, especially after the US military targeted Iranian boats and missile launch sites.

Latest developments in the Iranian war

• The United States launched defensive strikes on boats and missile sites in Iran.

• US Central Command (CENTCOM) announced that the strikes came after monitoring Iranian movements to deploy boats intended to plant new naval mines in the Strait of Hormuz to threaten shipping, as well as missile sites that could target US warplanes.

• Iranian news agencies acknowledged hearing powerful explosions in Bandar Abbas and coastal areas.

• Iranian authorities confirmed that “the situation is fully under control,” signaling their commitment to the truce despite the US violations.

• The Iranian Foreign Ministry spokesman said that a US-Iran agreement is not imminent.

• An Iranian delegation led by chief negotiator Mohammad Bagher Ghalibaf and Foreign Minister Abbas Araghchi is visiting Doha for further talks regarding the potential peace agreement with the United States.

Opinions and analysis

Charu Chanana, chief investment strategist at Saxo in Singapore, said: “Markets are justified in reflecting some optimism, because even the mere possibility of reopening the Strait of Hormuz reduces major risks related to oil, inflation, and global growth.”

Chanana added: “Optimism surrounding negotiations should not be confused with permanent de-escalation. The real test is not the main agreement itself, but whether oil tankers can sail freely, insurance premiums decline, and energy flows return to normal.”

European interest rates

• Reuters sources last week: The European Central Bank is highly likely to raise interest rates in June, given inflation expectations that are moving toward an undesirable scenario.

• Money markets are currently pricing the probability of the European Central Bank raising interest rates by 25 basis points next June at around 60%.

• Investors are awaiting further economic data from the eurozone on inflation, unemployment, and wages in order to reassess the above expectations.