Euro consolidates losses below 1.1400 amid higher Oil prices, risk-off markets

The Euro (EUR) experienced slight declines against the US Dollar (USD) on Monday, as setbacks in the Middle East peace efforts boosted Oil prices. At the same time, the US Treasury yields, driven by expectations of imminent Federal Reserve (Fed) rate increases, bolstered the Greenback. Consequently, the EUR/USD fluctuated between one-month lows of 1.1360 and 1.1400.

Market participants entered the week with cautious sentiment, given US President Donald Trump's rejection of Tehran's latest proposal to halt hostilities and reopen the Strait of Hormuz. This political uncertainty, in turn, heightened inflationary concerns and put further strain on Eurozone economies. The US Dollar, however, continued to find support from robust US economic data and surging Treasury yields, which had reached multi-decade highs.

Central banks are now contemplating higher neutral rates, reminiscent of the late 1990s. Societe Generale analysts maintain a cautiously optimistic outlook for the Dollar in the short term, although the long-term outlook is less favorable due to US politics and shifting global savings trends. Societe Generale experts anticipate that midterm elections and reduced global savings could weigh on the Dollar in the two to ten year horizon.

Central banks have the mandate to maintain price stability, managing inflationary or deflationary pressures through adjustments to their policy rates. By setting benchmark interest rates, central banks influence inflation either upwards or downwards. Higher rates signify monetary tightening, while lower rates indicate easing. The central bank's independence from political influence allows it to focus solely on managing inflation and guiding monetary policy.