Euro Fluctuates Ahead of Fed Decision Amid US-Iran Tensions

The euro has been under pressure in recent days and is now hovering near its weakest level in a month, below $1.14. This decline is partly due to renewed US-Iran hostilities that have lifted oil prices and reignited inflation concerns.

Investors are also cautious ahead of the Federal Reserve's policy decision later today, with markets assigning roughly a one-third chance of a 25-basis-point hike. The central bank is widely expected to leave interest rates unchanged.

However, some policymakers believe that at least one more rate increase will be necessary to bring inflation under control. ECB policymaker Peter Kazimir stated that 'a weaker economic outlook could warrant even more tightening than markets currently expect.'

The current inflation shock is considered moderate by Chief Economist Philip Lane, which supports further policy tightening. Investors are now awaiting euro area inflation data later this week for fresh clues on the ECB's policy path.