The euro fell in European trading on Wednesday against a basket of global currencies, extending losses for a third consecutive session against the US dollar and trading near a four-month low, as surging global energy prices driven by the Iran war weigh on the outlook for Europe’s economy.

The crisis is expected to push prices higher and accelerate inflation across the eurozone, placing growing inflationary pressure on policymakers at the European Central Bank.

At the same time, the European economy may require additional monetary support to limit the slowdown in economic activity, creating a complex policy dilemma between containing inflation and supporting growth.

Price Overview

Euro exchange rate today: the euro declined 0.35% against the dollar to $1.1575, down from the opening level of $1.1613, after touching a session high of $1.1620.

The euro ended Tuesday’s trading down 0.65% against the dollar, marking a second consecutive daily loss and hitting a four-month low of $1.1530, as the surge in global energy prices overshadowed data showing eurozone inflation came in above expectations in February.

Global energy prices

Global oil and gas prices surged due to the fallout from the US-Israeli war on Iran, which disrupted energy exports from the Middle East. Tehran’s attacks on ships and energy infrastructure led to the closure of shipping routes in the Gulf and halted production from Qatar to Iraq.

Brent crude rose more than 16% this week and reached a 20-month high of $85.07 per barrel, while European gas prices jumped 70% since the end of last week.

Views and analysis

Analysts at Wells Fargo said in a note that the euro faces a difficult situation. Europe’s natural gas storage refill season is about to begin, and the European Union is entering the season with record-low gas levels in storage, meaning it will need to purchase large amounts of energy at a time when prices could rise significantly.

George Saravelos, head of global FX research at Deutsche Bank, said the impact of the Iran war on EUR/USD revolves around one key factor: energy.

Saravelos added that a negative supply shock is currently forming, effectively acting as a direct tax on Europeans that must be paid to foreign producers in US dollars.

Analysts at ING wrote in a research note that the European Central Bank’s position has suddenly come into question, and they doubt the issue can be resolved in the very near term.

They added that the possibility of the ECB raising interest rates poses a serious risk to interest rate carry trades and could lead to a significant widening in eurozone government bond spreads.

The Japanese yen rose in Asian trading on Wednesday against a basket of major and secondary currencies, beginning a recovery from a six-week low against the US dollar amid notable buying activity from lower levels. The rebound comes under the watchful eye of Japanese authorities seeking to support the local currency.

Weak labor market data in Japan has reduced expectations for Japanese interest rate hikes in the near term, as investors await further evidence regarding the Bank of Japan’s monetary policy path this year.

Price Overview

Japanese yen exchange rate today: the dollar fell against the yen by 0.3% to ¥157.18, down from the opening level of ¥157.68, after touching a session high of ¥157.86.

The yen ended Tuesday’s trading down by 0.2% against the dollar, marking a second consecutive daily loss and hitting a six-week low of ¥157.97 due to the impact of the Iran war.

US Dollar

The dollar index fell by about 0.1% on Wednesday, retreating from a four-month high of 99.68 and heading toward its first loss in the past three sessions, reflecting weaker performance of the US currency against a basket of global currencies.

In addition to profit-taking activity, the dollar is easing ahead of the release of key US data on private sector employment for February and the performance of the services sector during the same month.

These figures are expected to provide additional evidence regarding the likelihood of the Federal Reserve cutting US interest rates during the first half of this year.

Japanese authorities

Japanese Finance Minister Satsuki Katayama said on Tuesday that financial officials are monitoring markets closely with a “strong sense of urgency.” When asked about the possibility of currency market intervention, she said Japan reached a mutual understanding with the United States last year.

Japanese interest rates

Data released on Tuesday in Tokyo showed Japan’s unemployment rate rose to 2.7% in January, above market expectations of 2.6%, after recording 2.6% in December.

Following this data, market pricing for a 25-basis-point interest rate hike by the Bank of Japan in March fell from 15% to 5%.

Pricing for a 25-basis-point rate increase in April also dropped from 40% to 25%.

In the latest Reuters poll, the Bank of Japan is expected to raise interest rates to 1% by September.

Analysts at Morgan Stanley and MUFG wrote in a joint research note that they had already viewed the probability of a rate hike in March or April as low, but with rising uncertainty stemming from developments in the Middle East, the Bank of Japan is likely to adopt a more cautious stance, further reducing the chances of a near-term rate hike.

Investors are now awaiting additional data on inflation, unemployment, and wages in Japan to reassess these expectations.

Palladium (XPD) fell sharply on Tuesday, coming under heavy pressure alongside other industrial metals amid geopolitical concerns tied to the ongoing conflict in the Middle East between the United States and China.

Key factors behind the decline:

Supply disruptions and geopolitical risks

Rising tensions in the Middle East and disruptions to some mining operations fueled concerns over supply. Paradoxically, however, these fears did not translate into strong buying interest. Instead, they added to market volatility while sellers maintained control.

Weaker US support for electric vehicles

Diminishing political momentum behind electric vehicle incentives in the United States weighed on sentiment. Palladium is heavily used in automotive catalytic converters, so any slowdown in supportive policy measures puts pressure on industrial demand expectations.

Clear technical pressure

The drop below the 20-day and 50-day moving averages sent a negative signal to short-term traders. The ADX indicator also reflects weak trend strength but with a bearish bias, suggesting that downward momentum is not yet strong enough for a decisive reversal, though sellers remain dominant.

Analyst views: divided outlook

Anton Kharitonov of Traders Union sees the break below short- and medium-term averages as a warning sign, identifying $1,715 as a key support level. A move below that could open the door to further losses, emphasizing that any current rebound appears fragile as long as sellers control the market.

Viktoras Karabytjank of Traders Union takes a more constructive stance, noting that weekly indicators such as RSI and MACD remain supportive over the longer term. He views the range between $1,700 and $1,750 as a consolidation phase within a broader long-term uptrend.

Market analyst Parshwa Turakhia focuses on the short term, arguing that indicators such as Stoch RSI and CCI point to near-term oversold conditions that could allow quick rebounds toward $1,750, though high volatility is likely to persist.

In US trading, March palladium futures were down 7.5% at $1,630.5 per ounce as of 19:18 GMT.

The global oil market is facing a worst-case set of outcomes as the war between the United States and Iran expands across large parts of the Middle East, with no clear off-ramp in sight. That raises the risk of prolonged supply disruptions that could slow global economic growth.

What is happening in the Strait of Hormuz and regional energy supply

Oil tanker traffic through the Strait of Hormuz has effectively stalled, the world’s most important maritime corridor for oil shipments, after shipping companies took precautionary steps and suspended passage through the chokepoint. Energy consultancy data indicates that roughly one-third of the world’s seaborne oil exports passed through the strait during 2025. The Strait of Hormuz is one of the most sensitive routes in global energy trade, linking the Gulf to the Indian Ocean.

Iran has also widened its retaliatory strikes to include regional energy facilities. Qatar announced a suspension of liquefied natural gas production after key facilities were hit by drone attacks. This matters because about 20% of global LNG exports come from Gulf countries, particularly Qatar, and move through the same highly sensitive sea lanes.

Natasha Kaneva, head of global commodities research at JPMorgan Chase & Co., said the prior assumption that an unprecedented disruption was unlikely has been proven wrong. She added that the war has already produced a near-complete halt in shipping through the strait in what she described as one of the most turbulent moments in modern maritime trade.

Crude prices rose more than 6% on Monday after jumping more than 12% earlier in the same day, while European natural gas prices surged more than 40%. Prices are expected to rise further depending on how long the war lasts and whether Iran targets energy infrastructure across the Gulf.

In the United States, drivers are expected to face higher fuel costs in the coming days. Gasoline prices could rise by $0.10 to $0.30 per gallon over the next week as crude costs climb.

Oil and gas price scenarios

Commodity analysts expect Brent crude to move above $100 per barrel, while European natural gas prices could exceed €60 per megawatt-hour if Tehran hardens its stance and continues attacks on energy facilities in neighboring countries, according to Bank of America. The bank also said a prolonged disruption in the strait could add another $40 to $80 per barrel to Brent.

If the war lasts more than three weeks, Gulf countries could run out of storage capacity as unsold crude accumulates without an export outlet, potentially forcing some producers to cut output. In that scenario, Brent could reach $120 per barrel, according to JPMorgan estimates.

If Iran imposes a full closure of the Strait of Hormuz using naval mines and anti-ship missiles, prices could spike sharply toward $200 per barrel, according to Deutsche Bank.

Historical comparison and other risks

The last time oil reached $100 per barrel was after Russia’s invasion of Ukraine in 2022, when US gasoline prices hit record levels above $5 per gallon.

Kaneva warned that a breakdown of Iran’s political system could pose an even larger supply risk. Iran produces more than 3 million barrels per day, and that output could be threatened if internal unrest or civil conflict erupts, a scenario that could push oil prices up by more than 70% in such cases.

A downside scenario

If fighting ends quickly, oil could return to a $60 to $70 per barrel range, according to Bank of America, especially if de-escalation happens within just a few days.

However, the United States and Iran still appear entrenched in their positions. Former Iranian national security adviser Ali Larijani rejected negotiations with the United States, saying the joint US-Israeli attack pushed the region into an unnecessary war.