• EUR/USD drops over 1% as investors flock to the safe-haven US Dollar amid Middle East tensions.
• Oil supply risks through the Strait of Hormuz raise inflation concerns for central banks.
• US ISM Manufacturing PMI eases to 52.4 in February, while Eurozone HCOB Manufacturing PMI holds steady at 50.8.

The Euro (EUR) edges lower against the US Dollar (USD) on Monday, with EUR/USD sliding more than 1% as investors rotate into the safe-haven Greenback amid escalating geopolitical tensions in the Middle East. At the time of writing, the pair trades around 1.1683, marking its lowest level in over a month.

A joint US-Israel strike on Iran over the weekend dampened risk appetite and boosted demand for the US Dollar. Iran retaliated by launching missile and drone attacks targeting US military bases across several Gulf nations, seeking revenge after the strikes resulted in the death of Iran’s Supreme Leader, Ayatollah Ali Khamenei.

US President Donald Trump said on Monday that “a big wave has yet to come” in the war with Iran, CNN reported. Meanwhile, US Secretary of Defense Pete Hegseth said that the US is “not ruling out any options,” adding that “we fight to win.”

Any prolonged conflict could disrupt Oil supply through the Strait of Hormuz, pushing energy prices higher and adding to global inflation pressure, which could complicate the monetary policy outlook for major central banks.

Austria’s central bank governor and European Central Bank (ECB) policymaker Martin Kocher said the ECB should be ready to move interest rates “in either direction” if uncertainty intensifies. Separately, ECB’s Pierre Wunsch said the central bank may reconsider its policy stance if oil prices stay elevated.

Meanwhile, the Federal Reserve (Fed) was already in a wait-and-see mode before considering any monetary policy easing, as inflation in the United States remains sticky and continues to run above the 2% target. As a result, traders have scaled back expectations for near-term rate cuts, providing an additional tailwind for the US Dollar.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 98.64, its highest level since January 22.

On the data front, the US ISM Manufacturing Purchasing Managers' Index (PMI) eased slightly to 52.4 in February from 52.6 in January. The Manufacturing Employment Index rose to 48.8 from 48.1, while the New Orders Index declined to 55.8 from 57.1. The Manufacturing Prices Paid Index jumped sharply to 70.5 from 59.0.

In the Eurozone, the HCOB Manufacturing PMI stood at 50.8 in February, unchanged from January and in line with expectations.