FX.co ★ Euro Holds Near Multi-Week Low Amid Middle East Tensions

The euro hovered around $1.16, close to its weakest level since January 16, as investors weighed the potential economic fallout from the escalating conflict in the Middle East, rising inflation risks, and the likelihood of a more hawkish European Central Bank. The confrontation has intensified, with reports that a US submarine sank an Iranian warship near Sri Lanka and that NATO air defenses intercepted an Iranian ballistic missile launched toward Turkey. The resulting jump in energy prices is expected to keep inflationary pressures elevated across Europe, bolstering expectations that the ECB may pursue tighter monetary policy. February figures underscored these concerns, with annual euro area inflation at 1.9% and core inflation at 2.4%, both exceeding forecasts. Markets now assign roughly a 40% probability of an ECB rate hike by year-end—reversing last week’s similar odds for a cut—and see about a 60% chance of an increase by June 2027.