By Boluwatife Oshadiya | March 5, 2026
Key Points
- Euro rises to about $1.165 as dollar softens amid Middle East tensions
- Dollar index slips to 98.928 after hitting three-month high earlier this week
- Markets now price roughly 40% chance of ECB rate hike by year-end
Main Story
The euro strengthened modestly to around $1.165 on Thursday, recovering part of its early-week losses as the US dollar eased amid escalating geopolitical tensions in the Middle East.
The US dollar had surged earlier in the week, pushing the DXY dollar index to a three-month high of 99.683. However, the index later retreated by 0.1% to 98.928 as investors reassessed global risk sentiment and monitored developments surrounding the Iran conflict.
In foreign exchange markets, the euro had earlier dropped to $1.1530 — its lowest level since November — before stabilizing above the $1.1600 level. During the Asia-Pacific session the currency slipped to roughly $1.1575 but later rebounded toward $1.1650 during European trading hours.
Despite the rebound, analysts say the euro remains under pressure as geopolitical uncertainty and rising energy costs continue to cloud the economic outlook for the eurozone.
Recent economic data from the region also suggests mixed momentum. February eurozone inflation data showed headline inflation at 1.9% and core inflation at 2.4%, both above market expectations.
Meanwhile, the latest Purchasing Managers’ Index (PMI) readings indicated modest improvement in economic activity. The eurozone composite PMI rose to 51.9, marking its first improvement in three months, although it remains below the 2025 peak of 52.8 recorded last November.
Other economic indicators showed a mixed outlook. Producer prices rose 0.7% in January, although they remain down 2.1% year-on-year, while the eurozone unemployment rate declined to a record low of 6.1%.
What’s Being Said
Market analysts say the euro’s recent weakness reflects both geopolitical risk and expectations surrounding European Central Bank policy.
“The technical damage inflicted on the euro is significant, and while the currency appears oversold, near-term consolidation may be the best outcome until geopolitical tensions ease,” currency analysts said in a market note.
What’s Next
Investors will continue to monitor inflation data and economic activity indicators across the eurozone for clues on the European Central Bank’s next policy move.
Markets currently estimate roughly a 40% probability that the ECB could raise interest rates before the end of the year — a sharp shift from last week, when traders saw a rate cut as equally likely.
