• The Euro remains stable against the Pound Sterling as investors stay cautious amid rising geopolitical tensions.
• Middle East risks and potential disruptions to global Oil routes keep markets on the defensive.
• Traders await Germany’s preliminary inflation figures for fresh clues on the European Central Bank’s policy outlook.

EUR/GBP trades around 0.8680 on Monday at the time of writing, virtually unchanged on the day. Price action remains limited as investors adopt a cautious stance amid rising geopolitical tensions in the Middle East and ahead of key inflation data from Germany.

Comments by US President Donald Trump describing the current Iranian leadership as “very reasonable” were largely ignored by markets. Instead, investors are focusing on the risk of a broader regional escalation, particularly with the possible involvement of the Iran-backed Houthis. Their potential threat to the Bab el-Mandeb Strait, a strategic chokepoint for global Oil shipments, could further intensify energy market concerns.

In this environment, rallies in the Euro (EUR) remain limited. Traders are now turning their attention to Germany’s preliminary March inflation figures, including the Harmonized Index of Consumer Prices (HICP) and the Consumer Price Index (CPI). These releases will be closely watched, as they could influence expectations regarding the future monetary policy stance of the European Central Bank (ECB).

According to Bob Savage from BNY, stagflation risks are increasing in the Eurozone due to rising energy prices. He notes that headline inflation could be pushed higher by fuel costs, while core inflation may remain more contained. In this context, the ECB is likely to remain cautious while assessing potential second-round inflation effects.

Savage also argues that markets may eventually scale back expectations of aggressive front-end rate hikes in both the Eurozone and the United Kingdom (UK), although this adjustment could occur through a volatile process.

Earlier sentiment indicators released in the Eurozone came in broadly stronger than expected but had little impact on the Euro. Investors remain focused on upcoming inflation data as well as geopolitical developments and energy price dynamics.

In the UK, the Bank of England (BoE) indicated earlier this month that an interest rate hike could come as soon as April, as elevated energy prices continue to fuel inflation concerns.

Meanwhile, fears that the Middle East conflict could widen are increasing concerns about persistently higher Oil prices, a scenario that could weigh on currencies of economies heavily dependent on energy imports, such as the United Kingdom.