Euro Weakens as Hormuz Tensions Lift Safe-Haven Demand
The euro weakened further to around $1.135, its lowest level since May 2025, as stalled negotiations over reopening the Strait of Hormuz pushed oil prices higher and boosted demand for the US dollar as a safe haven. Investors also weighed comments from ECB President Christine Lagarde alongside flash inflation data. Lagarde said the recent inflation surge has yet to generate significant second-round effects across the euro area, suggesting a measured policy response remains appropriate. With eurozone inflation already above 3% and potentially approaching 4% by year-end, markets are pricing in up to four additional rate hikes over the next year, following two increases over the summer. Economists generally expect the ECB to hold rates at its October 29 meeting and resume tightening in December, when fresh economic projections are due. Meanwhile, Spain’s harmonized inflation rate climbed to 5% in September, its highest in three years and well above the ECB’s 2% target.
135, its lowest level since May 2025, as stalled negotiations over reopening the Strait of Hormuz pushed oil prices higher and boosted demand for the US dollar as a safe haven. Investors also weighed comments from ECB President Christine Lagarde alongside flash inflation data. Lagarde said the recent inflation surge has yet to generate significant second-round effects across the euro area, suggesting a measured policy response remains appropriate. With eurozone inflation already above 3% and potentially approaching 4% by year-end, markets are pricing in up to four additional rate hikes over the next year, following two increases over the summer.
Economists generally expect the ECB to hold rates at its October 29 meeting and resume tightening in December, when fresh economic projections are due. Meanwhile, Spain’s harmonized inflation rate climbed to 5% in September, its highest in three years and well above the ECB’s 2% target.