Euro Rebounds as Easing Middle East Tensions Boost Risk Appetite

The euro has rebounded from near one-year lows as tensions between the US and Iran ease and oil prices decline. Brent crude retreated from two-month highs, helping to alleviate inflation concerns and reducing expectations for further European Central Bank tightening.

ECB Chief Economist Philip Lane stated that the current inflation shock remains moderate, warranting some additional policy tightening but not an aggressive response. He also reiterated that inflation is expected to return to the ECB's 2% target over the coming year.

Last week, the ECB left interest rates unchanged as expected, signaling that another rate hike in September remains possible. Investors are now awaiting fresh inflation data later this week for further clues on the policy outlook.