Danske Research Team notes that EUR/USD has rebounded above 1.15 as risk sentiment improves with hopes of a US-Iran de-escalation. They highlight that lower global yields and sharply lower energy prices have supported the Euro against the Dollar. Euro area inflation rose mainly on energy, and ECB officials stress vigilance but keep a meeting-by-meeting approach.

Euro benefits from lower yields, energy

"In the euro area, March HICP inflation rose to 2.5% y/y, slightly below the expected 2.6% but up from 1.9% in February. Core inflation aligned with expectations at 2.3% y/y. The increase was driven entirely by energy inflation, which surged 6.8% m/m, the second-largest rise since March 2022. No war-related effects were visible in other components. "

"While the report is less concerning than feared, giving the ECB some more time to "wait and see", energy prices continue to rise. The ECB is likely to focus on April's inflation data and forward-looking indicators before deciding on policy changes."

"In the ECB space, officials Muller, Panetta and Rehn highlighted inflationary risks and the potential for monetary policy adjustments in response to the Iran conflict and elevated energy prices. Muller indicated that interest rates are likely to rise in the coming quarters, questioning the ECB's 2026 inflation forecast of 2.6% as overly optimistic."

"Panetta stressed the need to prevent a wage-price spiral and ensure monetary policy remains proportionate. Rehn, however, struck a cautious tone, stating that a rate hike is not guaranteed and that decisions will be made on a meeting-by-meeting basis, with a focus on the medium-term inflation outlook. All emphasised vigilance against second-round effects, as euro-area inflation reached 2.5% in March."

"While quarter-end flows set the tone during yesterday's European session the renewed optimism wrt. a possible end to the Iran war has been the dominant driver in both FI and FX markets in the last 12 hours."

"Energy prices have moved considerably lower and EUR/USD is now back above the 1.15-level."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)