The euro stabilised to some extent after several sessions of weakness against the US dollar.
The European currency could remain exposed to additional pressure from the dollar as the latter continues to benefit from safe-haven demand.
However, elevated sovereign yields across the euro area could help limit the downside risks, with Germany’s benchmark 10-year yield climbing to a 15-year high as markets increasingly price a firmer monetary policy path from the European Central Bank.
Elevated energy prices have reinforced expectations that the ECB may need to hike its interest rates to control inflation. This comes as escalating tensions in the Middle East, coupled with continued uncertainty surrounding the Strait of Hormuz, have raised concerns over energy supply disruptions and their impact on consumer prices.
Looking ahead, attention turns to the G7 finance ministers meeting, where policymakers are expected to discuss inflation risks and financial market volatility. PMI readings and consumer confidence data across the euro area will also be key in shaping expectations for growth, monetary policy, and the euro’s near-term direction.
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