The euro weakened against a basket of global currencies in European trading on Monday, extending its losses for a second consecutive session against the US dollar and falling to its lowest level in two months. The decline came as investors moved away from risk-sensitive assets amid escalating geopolitical tensions in the Middle East following a new exchange of military strikes between Iran and Israel.
Rising global oil prices have also revived concerns about accelerating inflation, increasing the likelihood that major central banks could raise interest rates in the near term, a sharp shift from pre-war expectations that rates would remain unchanged or move lower for an extended period.
Price action
EUR/USD fell about 0.15% to $1.1506, its lowest level since April 6, compared with Fridays closing level of $1.1521. The pair touched an intraday high of $1.1535.
The euro ended Friday down 0.8% against the dollar, its largest daily loss since March 13, after stronger-than-expected US employment data boosted demand for the US currency.
The single currency lost 1.2% against the dollar last week, marking its third weekly decline in a month, pressured by rising US Treasury yields and renewed geopolitical tensions in the Middle East.
US dollar
The US Dollar Index gained 0.1% on Monday, extending its advance for a second straight session and reaching a two-month high of 100.17 points, reflecting continued strength in the US currency against major global peers.
Strong US labor market data released on Friday reinforced expectations that the Federal Reserve may continue normalizing monetary policy and raise interest rates later this year.
The dollar also benefited from renewed safe-haven demand as military tensions between Iran and Israel intensified, threatening the fragile ceasefire arrangement in the region.
Oil prices
Global oil prices rose more than 3% on Monday, resuming their strong rally after a brief two-day pause and moving toward their highest levels in several weeks.
The gains were driven by renewed fears of supply disruptions from the Middle East as military exchanges between Iran and Israel escalated.
Latest developments in the Iran conflict
Iran and Israel exchanged military strikes, raising concerns about the durability of the fragile ceasefire in the Middle East.
Irans Revolutionary Guard launched multiple waves of ballistic missiles targeting Israeli sites, including the Ramat military base, in response to Israeli attacks on Beiruts southern suburbs.
The Israeli military reported intercepting the missiles while activating air raid sirens and placing hospitals and schools on maximum alert.
US President Donald Trump reportedly held an urgent phone call with Israeli Prime Minister Benjamin Netanyahu, urging restraint and discouraging an immediate military response.
Israeli warplanes carried out intensive strikes against military targets and other locations in Tehran, with powerful explosions reported across the capital.
Trump informed Israeli officials that Washington was close to reaching a final agreement with Tehran through Pakistani mediation and requested additional time for diplomacy.
The fragile ceasefire between the United States and Iran has technically remained in place since early April.
Trump delivered a direct warning to Tehran, saying: Youve launched your missiles. Thats enough. Return to the negotiating table immediately.
Trump also stated that the latest Israeli and Iranian strikes would not derail the peace process.
European interest rate outlook
As oil prices continue to rise, money markets have increased the probability of a 25-basis-point interest rate hike by the European Central Bank in June from 93% to 98%.
According to sources cited by Reuters, the ECB is now widely expected to raise interest rates in June as inflation projections continue to move in an unfavorable direction.