Iran’s Islamic Revolutionary Guard Corps (IRGC) has declared that no vessels will be permitted to cross the Strait of Hormuz, a critical waterway for global oil shipments, according to reports from Reuters. The announcement comes amid heightened geopolitical tensions and fluctuating energy prices, impacting currency markets.
The euro experienced a decline against the U.S. Dollar, falling below 1.1600, driven by rising oil prices and a temporary pullback in risk appetite on Wall Street. However, the euro’s weakness was partially offset by reports regarding Iran’s stance on the Strait of Hormuz and a reassessment of potential interest rate hikes within the Eurozone.
The EUR/USD pair briefly recovered to above 1.1610 despite prevailing downward pressure during Asian trading. Technical indicators suggest caution, with the Relative Strength Index (RSI) nearing oversold territory and trading volume remaining low. This hesitancy reflects the complex geopolitical climate, anticipation of upcoming economic data releases from the European Central Bank (ECB), and the U.S. Nonfarm Payroll (NFP) report.
A recent rally in the dollar was initially attributed to reports from the New York Times suggesting Iran was open to negotiations with the CIA. These reports were subsequently denied by Iranian representatives, reinstating concerns about a prolonged conflict and dampening risk sentiment. The euro has been trading as a risk asset, mirroring the performance of other risk-sensitive currencies like the Australian and New Zealand dollars, which saw declines of 0.4% and 0.3% respectively.
Europe’s geographical proximity to the Middle East and its reliance on energy supplies make it particularly vulnerable to disruptions in the region. Market activity in options indicates a prevailing fear of further euro declines, with put options dominating trading volume.
Reports from Bloomberg, citing military sources, indicated that Iran has not closed the Strait of Hormuz and intends to uphold international maritime law. Approximately 20% of the world’s oil supply transits the strait, with a significant portion destined for China, which is reportedly urging Iran to avoid supply disruptions. Brent crude oil prices have retreated from nearly $85 to around $82.60 per barrel, although data from Kpler indicates a substantial decrease in traffic through the strait.
Economic data released from the Eurozone showed retail sales increasing by 2% year-on-year in January, exceeding expectations of 1.7%. However, the month-on-month figure unexpectedly fell by 0.1%, compared to a forecast of 0.3% growth. The data presents a mixed picture, though not necessarily signaling significant pessimism. The monthly decline was largely attributed to reduced spending on fuel and non-food products, while revisions to the previous month’s data improved the overall baseline. Record low temperatures in January also limited consumer mobility and spending.
The swaps market has begun to price in the possibility of an interest rate increase in the Eurozone in 2026. Concerns about rising energy prices and a resurgence of inflation in Europe continue to overshadow the retail sales data.
