The euro fell to $1.156, its lowest level since late November, as investors sought safety in the US dollar amid escalating tensions in the Middle East. The conflict intensified after Israel struck Beirut on Friday, following an unprecedented evacuation of the entire southern suburbs of the Lebanese capital. The move marked a major expansion of Israel’s war against Iran, which began a week earlier in coordination with the United States. At the same time, President Trump claimed a role in determining Iran’s next supreme leader, following reports of Ayatollah Khamenei’s death.
Rising energy prices are expected to keep inflationary pressures elevated across Europe, reinforcing expectations that the European Central Bank may adopt a tighter monetary policy stance. Several ECB policymakers have cautioned that a prolonged war involving Iran and potentially drawing in additional countries could push eurozone inflation higher while simultaneously slowing economic growth. Money markets currently price in roughly a 55% probability of a rate hike in July and an 85% chance of another increase by December.