The euro traded near $1.1750 in Asia on Monday, staying on the back foot as renewed tensions between the United States and Iran boosted demand for the dollar. The U.S. currency extended gains on its safe-haven appeal amid heightened uncertainty in the Middle East, while the euro managed only a modest rebound from earlier losses.
Hormuz closure and stalled talks underpin safe-haven bid
Iran’s state news agency said authorities have refused to reopen diplomatic talks with Washington, dismissing U.S. proposals as based on “unrealistic expectations.” The announcement came after Tehran reversed plans to lift its blockade of the Strait of Hormuz, keeping the strategic passage closed.
The narrow channel, which handles a significant share of global oil shipments, was expected to reopen on Friday. Instead, it remained shut through the weekend after President Trump rejected Iranian requests to ease restrictions on its ports.
Trump confirmed that U.S. officials will travel to Islamabad on Monday for discussions related to the standoff. He also warned that the U.S. would target Iranian infrastructure if the closure of Hormuz persists.
Ship-tracking data show the practical fallout from the confrontation: overall traffic through the waterway has dropped by more than 95% since the conflict began, with many vessels turning back before entering the strait.
Fed outlook supports stronger dollar
The dollar’s advance also reflects expectations that the Federal Reserve will keep interest rates elevated for longer, amid persistent inflation and geopolitical risks.
Prediction markets currently assign a 97.7% probability that the Fed will leave rates unchanged at its April 28–29 meeting. Analysts broadly expect U.S. borrowing costs to remain in the 3.5%–3.75% range through the end of 2026, as policymakers monitor the impact of higher energy prices and potential strains in the labor market.
U.S. retail sales data due Tuesday are forecast to show a 1.3% month-on-month gain in March, up from a 0.6% increase in February, reinforcing the picture of steady domestic demand.
Separate figures from the National Retail Federation indicate U.S. consumer spending in March was 7% higher than a year earlier, helped by tax refunds that have partly offset rising fuel costs. The data suggest the U.S. economy may be better placed to withstand a prolonged period of higher interest rates.
Euro weighed by energy shock despite ecb speculation
The euro found some support on speculation that the European Central Bank could consider a rate hike later this year. ECB President Christine Lagarde said last week that rising energy costs are putting pressure on Eurozone growth but stopped short of providing guidance on the timing of any policy move.
Fresh Eurostat data show annual inflation in the euro area accelerated to 2.6% in March from 1.9% in February. The jump was driven largely by a 5.1% year-on-year surge in energy prices, closely linked to the disruption around Hormuz.
This leaves the ECB in a difficult position ahead of its April 30 meeting, balancing the need to contain inflation against the risk that higher energy costs and weaker output could derail the region’s recovery.
Energy risks and Europe’s growth outlook
The renewed closure of the Strait of Hormuz and ongoing tensions across the Middle East have intensified concerns about Europe’s energy security and the broader inflation outlook.
Higher import costs and supply disruptions threaten to slow industrial activity and consumer spending, raising the risk that elevated prices and weaker growth could reinforce downward pressure on the euro in the months ahead.
Euro’s global role amplifies policy divergence
The euro remains the world’s second most traded currency, accounting for 31% of global foreign exchange turnover in 2022, with daily trading above $2.2 trillion. The euro-dollar pair alone represents about 30% of worldwide FX activity.
This deep liquidity means the widening gap between a firm U.S. rate stance and Europe’s energy-driven headwinds is reverberating across a substantial share of global currency markets, keeping traders focused on incoming data and policy signals from both sides of the Atlantic.
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