FX.co ★ Euro Rebounds as Easing Middle East Tensions Boost Risk Appetite

The euro climbed back above $1.14, rebounding from the near one-year lows hit last week, as easing tensions between the US and Iran and a sharp drop in oil prices lifted risk sentiment. Brent crude pulled back from two-month highs, helping to temper inflation fears and prompting money markets to slightly pare expectations for additional European Central Bank tightening, though they still price in nearly two 25-basis-point rate hikes by February 2027.

ECB Chief Economist Philip Lane said the current inflation shock remains moderate, justifying some further policy tightening but not an aggressive response. He also reiterated that inflation is expected to return to the ECB’s 2% target over the coming year.

Last week, the ECB kept interest rates unchanged, as widely anticipated, while signaling that another rate increase in September remains possible. Investors are now awaiting fresh inflation data later this week for further guidance on the future policy path.