The euro is under increased pressure due to geopolitical tensions between the United States and Iran, which are reviving fears of global energy instability. This depreciation reflects market risk aversion, with the single European currency falling below the critical threshold of $1.05.

Context of US-Iran tensions

Disputes surrounding Iran’s nuclear program, combined with strengthened sanctions by Washington, are raising concerns about disruptions in the Strait of Hormuz. Europe, which is 25% dependent on Middle Eastern oil imports, is paying a heavy price for this geopolitical volatility.

Brent crude oil is trading above $87 a barrel, increasing energy costs for German industry and French transportation. Investors are turning to the dollar as a safe haven, further exacerbating the euro’s slide.

Immediate Macroeconomic Impacts

• Imported Inflation: Energy prices are pushing European inflation towards 2.6%, forcing the ECB to maintain restrictive interest rates despite an economic slowdown.
• Mixed Competitiveness: Exporters (Germany, Italy) are benefiting from a weak euro, but costly imports are weighing on households and the chemical industry.
• Trade Balance: A slight improvement is expected (€15 billion in 2026), but this is insufficient given the revised growth forecast of 0.9%.

Central Bank Reactions

The ECB, under Christine Lagarde, is signaling “increased vigilance” and no interest rate cuts before June. The Fed, faced with US inflation under control at 2.3%, is maintaining its hawkish stance, favoring the dollar.

Currency traders anticipate a floor of $1.02 by May if tensions persist. The euro/yen exchange rate is also falling below 150, isolating the single currency on the foreign exchange market.

European Perspectives and Strategies

• Short term: accelerated purchases of Norwegian and Qatari energy to diversify supplies.
• Medium term: the REPowerEU plan aims to deliver €45 billion in green investments by 2027 to reduce energy vulnerability.
• Long term: strengthening the euro as a reserve currency through climate-related eurobonds and coordinated European defense.

This pressure on the euro does not signal a sustained decline, but it compels Europe to accelerate its strategic sovereignty. A de-escalation of US-Iranian tensions by the summer stabilizes the currency around $1.08-$1.10.