The euro came under pressure against a basket of major global currencies in European trading on Monday, extending its losses for a second consecutive session against the US dollar as investors shifted away from riskier assets and back into the US dollar amid renewed military tensions between the United States and Iran over control of the Strait of Hormuz.
Meanwhile, the surge in global oil prices has increased expectations that the European Central Bank could deliver one additional 25-basis-point interest rate hike before the end of the year, with investors awaiting further economic data from the eurozone.
The Price
The euro fell around 0.3% against the US dollar to $1.1384, from Friday's closing level of $1.1415, after reaching an intraday high of $1.1405.
The euro closed Friday down around 0.15% against the dollar, posting its first daily loss in three sessions as investors shifted away from riskier assets.
The single currency lost 0.2% against the dollar last week, marking its third weekly decline in a month as renewed military strikes between the United States and Iran weighed on sentiment.
US dollar
The US Dollar Index rose 0.25% on Monday, extending its gains for a second consecutive session as the greenback strengthened against a basket of major global currencies.
Demand for the dollar as a safe-haven asset picked up again as military tensions between the United States and Iran escalated over control of the Strait of Hormuz, raising fears that the framework agreement could collapse and direct confrontation between the two countries could resume.
Global oil prices
Oil prices surged more than 4% at the start of Monday's trading, putting crude on track to reach its highest levels in several weeks after Iran announced the closure of the Strait of Hormuz, fueling concerns over potential supply disruptions from the Gulf region.
The sharp rise in oil prices has also reignited concerns about accelerating inflation, increasing the likelihood that major central banks could raise interest rates in the near term, marking a significant shift from pre-war expectations for prolonged rate cuts or an extended period of policy stability.
Latest developments in the Iran conflict
The US Central Command (CENTCOM) launched a third wave of intensive airstrikes along Iran's coastline.
The latest US strikes followed attacks by Iran's Islamic Revolutionary Guard Corps Navy on commercial vessels in the Strait of Hormuz.
Iran expanded its military operations against Gulf states following the US strikes and announced the closure of the Strait of Hormuz.
President Donald Trump said the Strait of Hormuz is "open and will remain open" through the use of military force, while the US Treasury revoked temporary licenses allowing Iranian oil sales.
Iran's Foreign Ministry accused Washington of undermining diplomatic efforts and violating the terms of the framework agreement.
Iranian Parliament Speaker Mohammad Bagher Ghalibaf declared that the era of "unequal agreements" is over and warned that Washington would "pay the price."
European interest rates
Money markets are currently pricing around a 25% probability of a 25-basis-point European Central Bank rate hike at the July meeting.
The probability of a 25-basis-point ECB rate hike in December has climbed to above 95%.
Investors are awaiting additional eurozone data on inflation, unemployment, and wage growth to reassess those expectations.