Euro Under Pressure from Oil Price Surge and Geopolitical Tensions
The euro is facing multiple challenges as it trades near its lows against the US dollar. The currency rebounded slightly to around 1.1385, up approximately 0.1%, but the sustainability of this rebound remains questionable.
Escalating conflict in the Middle East, including Houthi attacks on Saudi oil tankers in the Red Sea and US military airstrikes against Iran, has heightened geopolitical tensions. Former President Trump warned of 'significant military punishment' for both the Houthis and Iran.
The surge in oil prices is lifting global inflation expectations, reinforcing expectations of Federal Reserve rate hikes. According to the CME FedWatch Tool, the probability of a 25-basis-point rate hike at the July meeting stands at 35.8%, while the likelihood of at least a 25-basis-point hike by September is as high as 82.1%.
The US government plans to impose new tariffs ranging from 10% to 12.5% on major trading partners, with the European Union facing tariffs of at least 10%. The ECB held rates steady on Thursday, but cautioned that the full inflationary impact of the energy shock has yet to materialize.