The euro weakened in European trading on Monday against a basket of global currencies, pulling back from a two-week high against the US dollar and heading toward its first loss in three sessions, as profit-taking and corrective selling emerged amid a cautious mood across global markets ahead of developments in ongoing peace negotiations between the United States and Iran.

Following media reports and rising global oil prices, expectations for a European Central Bank interest rate hike at this month's meeting have increased. Investors are now awaiting the release of the Eurozones key inflation data for May on Tuesday to reassess those expectations.

Price Overview

Euro exchange rate today: The euro fell about 0.15% against the dollar to $1.1642, from an opening level of $1.1658, after reaching an intraday high of $1.1659.

The euro ended Friday up about 0.1% against the dollar, marking its second consecutive daily gain and reaching a two-week high of $1.1686 amid easing military tensions between the United States and Iran in the Strait of Hormuz.

During May, the euro lost 0.65% against the US dollar, recording its third monthly decline in the past four months due to risk aversion and rising US Treasury yields.

US dollar

The dollar index rose 0.15% on Monday as part of a recovery from a two-week low, reflecting renewed strength in the US currency against a basket of major and minor currencies.

The advance comes amid cautious market sentiment and reduced risk-taking as investors await the outcome of negotiations between the United States and Iran regarding an end to the war and the reopening of the Strait of Hormuz, one of the world's most important energy trade routes.

Global oil prices

Oil prices jumped more than 2% on Monday, rebounding from five-week lows as Israel expanded its offensive in Lebanon, reducing hopes for a ceasefire in the Middle East.

Latest developments in the Iranian war

The United States and Iran remain without an agreement to end the war after Trump stated that he is not in a hurry to finalize a deal.

The US president returned the proposed agreement draft with Iran to include stricter conditions related to the nuclear file, extending negotiations for several additional days.

Donald Trump said on Friday that he would make a decision soon regarding the proposed agreement to extend the ceasefire with Iran.

The mechanism for releasing frozen Iranian assets abroad remains one of the most complex points of disagreement between Washington and Tehran.

Iranian Foreign Minister Abbas Araghchi confirmed that messages continue to be exchanged with Washington, noting that the success of the talks will ultimately be judged by their final outcome and whether the rights of the Iranian people are preserved.

European interest rates

Sources told Reuters that the European Central Bank is highly likely to raise interest rates in June due to inflation expectations moving toward an undesirable scenario.

Amid the rebound in global oil prices, money markets increased the probability of a 25-basis-point ECB rate hike in June from 55% to 65%.

To reassess those expectations, investors are awaiting the release of the Eurozones key inflation data for May on Tuesday.