The euro fell against the dollar after US-Iran talks progress and ECB President Lagarde downplayed inflation concerns, boosting Fed rate hike expectations.
The euro declined 0.37% to 1.1428 against the US dollar Monday, driven by optimism over US-Iran negotiations and tempered expectations for European Central Bank rate hikes. The US temporarily lifted sanctions on Iran for 60 days, while ECB President Christine Lagarde’s comments eased investor concerns about second-round inflation effects.
Fed rate hike bets gained traction, with money markets pricing a 45% chance of a July increase. Bank of America and Deutsche Bank forecast potential hikes in September, with BoFA projecting three 25-basis-point increases in 2026. The shift follows a slightly hawkish tilt from the Fed last week, as nearly half of its members signaled support for higher rates.
Market focus remains on US monetary policy amid a light economic calendar, with traders weighing the likelihood of further tightening. The dollar’s strength reflects growing confidence in the Fed’s ability to address inflation, contrasting with Lagarde’s cautious stance on ECB policy.