FX.co ★ Euro Nears Two-Month Low

The euro weakened to $1.145, its lowest level since late July, as investors weighed developments in the Middle East while the US dollar stayed supported by expectations of further Federal Reserve rate hikes. Brent crude resumed its decline after reports that Iran had offered to reopen the Strait of Hormuz within seven days if Washington lifts its military blockade of Iranian ports.

Meanwhile, ECB Chief Economist Philip Lane warned that a renewed surge in energy prices could keep inflation in the Eurozone elevated for longer than policymakers had initially anticipated. He noted that the shock is likely to produce higher and more persistent inflation before it gradually moves back toward the ECB’s target from mid-2027.

Following a second rate increase this month—introduced after the outbreak of the Iran war drove energy costs sharply higher—ECB officials have begun preparing markets for additional tightening. Eurozone inflation is expected to climb to around 4% in the coming months, with the ECB forecasting an average rate of 3% for this year and 2.5% for next year, both well above its 2% target.