The euro fell against a basket of major currencies during European trading on Friday, extending losses against the US dollar for a second consecutive session as demand for the US currency strengthened as a safe haven amid growing concerns over a renewed escalation in the Iran conflict.

The latest weakness came as military exchanges between the United States and Iran continued for a sixth consecutive day.

Inflationary pressures have also returned to the forefront for European Central Bank policymakers following the sharp rise in global oil prices this week, increasing the risk that inflation across the eurozone could begin accelerating again.

This has reinforced market expectations that the European Central Bank will continue tightening monetary policy, with the likelihood of an interest rate hike at its September meeting rising further.

The Price

The euro fell around 0.1% against the dollar to $1.1435, from an opening level of $1.1442, after reaching an intraday high of $1.1448.

The euro ended Thursday down 0.15% against the dollar, marking its first loss in three sessions as investors took profits following a rise to a four-week high of $1.1483.

US dollar

The dollar index rose 0.1% on Friday, extending gains for a second consecutive session and reflecting continued strength in the US currency against a basket of major and minor currencies.

Investors continued to buy the dollar as a safe-haven asset as military exchanges between the United States and Iran intensified, while declining shipping traffic through the Strait of Hormuz increased concerns over potential disruptions to global oil supplies.

Global oil prices

Oil prices rose more than 0.5% on Friday, resuming gains after Thursday's temporary pause and moving toward the one-month highs reached on Tuesday as military activity between the United States and Iran intensified around the Strait of Hormuz.

Latest developments in the Iran conflict

The United States launched a fresh wave of airstrikes against targets inside Iran for a sixth consecutive day.

Iran's Revolutionary Guard responded with retaliatory ballistic missile and drone attacks targeting military bases hosting US forces across the region.

Iran warned the United States that the Strait of Hormuz represents a "red line," pledging to respond to any attacks on its infrastructure.

Reports indicated that Tehran is considering broadening its response, including threatening shipping in the Red Sea if US strikes continue.

The US fleet, consisting of 20 warships and hundreds of fighter aircraft in the region, continues to intercept vessels traveling to and from Iranian ports.

Recent developments suggest that the temporary de-escalation agreement reached in June has effectively collapsed, with negotiations halted and large-scale military operations resuming.

European interest rates

As global oil prices climbed, money-market pricing for a 25-basis-point interest rate hike by the European Central Bank at its July meeting rose above 35%.

Expectations for a quarter-point increase at the ECB's September meeting climbed above 95%.

Investors are now awaiting additional eurozone data on inflation, unemployment, and wages to reassess the outlook for monetary policy.