Euro Falls Below $1.16 on Middle East Tensions and Rising Oil Prices

The euro depreciated below $1.16 against the dollar on Wednesday, driven by heightened risk aversion stemming from escalating tensions in the Middle East and a subsequent rise in crude oil prices. The single currency traded at $1.1598 in the afternoon GMT, down from $1.1646 in European trading the previous day.

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The private sector business activity in the Eurozone registered a contraction for two consecutive months in May for the first time since the end of 2024.

The geopolitical situation, with reported attacks involving Iran, Kuwait, Bahrain, and Israel's actions in southern Lebanon, has destabilized the Middle East, increasing investor caution and boosting oil prices. This backdrop has negatively impacted the euro.

Compounding the euro's weakness, economic data from the Eurozone indicated a contraction in private sector business activity for the second consecutive month in May, the first time since late 2024. S&P Global Market Intelligence chief economist Chris Williamson noted that price pressures have intensified, suggesting inflation could approach 4% in the coming months. Producer prices in the Eurozone rose 4.9% year-on-year in April, largely due to a 12.3% increase in energy costs.

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Price pressures have intensified to their most worrying level in more than three years, suggesting that inflation could approach 4% in the coming months.

Meanwhile, positive economic indicators from the United States are bolstering the dollar. New employment data showed the private sector created 122,000 jobs in May, and the manufacturing Purchasing Managers' Index rose to 54.5. These figures increase expectations for potential interest rate hikes by the Federal Reserve, making the dollar more attractive to investors.

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The private sector created 122,000 jobs in the United States in May compared to the previous month, according to ADP.